Most of us have a planned or organized approach towards important events of our life. From career to buying a new house, we all plan our finances in some way or another. Besides, we should always remain ready for uncertainties that might take place at any point in life. If you are a salaried professional, you must be familiar with the month-end financial crunch that haunts no matter how lucrative the paycheck is. Most of us are left with the daunting thought that where has all the money gone?
Therefore, many people believe in saving their money as soon as they receive their monthly salary. That’s right, commonly known as a home’s monthly budget, it is a part of a broader term- financial planning.
Five Effective Financial Planning Tips for Salaried Employees
Financial planning is a planned way to manage your finances as soon as you start earning. Especially for salaried employees, it emerges as a powerful tool to make the best out of their hard-earned money.
1. Monthly Budget
This is the first step to financial planning, where a person must start by saving some money from their salary each month. Maintaining a written diary as recording the monthly budget can imbibe the habit of spending wisely. Generally, expenses are categorized into three categories:
a) Needsb) Wantsc) Savings
Needs consist of basic and unavoidable necessities, such as house rent, electricity, water, and groceries. Wants include those commodities which do not affect your life if you don’t spend on them, such as outings, food, and travel. Finally, savings are a specific proportion of your monthly salary, which you save for future emergencies.
Most financial experts recommend applying the 50-20-30 rule, which means 50% of your monthly income should go towards the needs, 20% must go to savings and investments, and you can spend the rest 30% on wants.
2. Insurance for your Family
Investing your saved money into a life insurance plan is a wise step. Insurance is a type of protection for you and your family that can be availed when in need. Although the banks offer several kinds of insurances, the following are the major types that most people seek:
a) Term Insuranceb) Health Insurance
For example- Canara HSBC Life Insurance, also known as pure term insurance, provides life cover for your family of up to 99 years. It guarantees the payment to the beneficiaries in case the insured person dies during this term. In this way, the needs of the family can cope up better during a financial shock.
All in all, an insurance plan can be a token for safeguarding you and your family.
3. Clearing Debts
Debt can be a real trap in one’s financial planning if not cleared on time. Yes, unless you close all your debts, all the earnings and plannings can go in vain as you will be stuck in a vicious circle of paying your monthly EMI’s.
To avoid getting burdened by debts, go back to step-1 and analyze if you overspend your wants. Here are some quick tips on living a debt-free life.
a) Repay your credit card bills as soon as you can.b) Close all your loans on time.c) If your home loan’s EMI is higher than the rent itself, then you have a decision to make. You can also use an EMI calculator for such estimations.d) Don’t get attracted by offers like 0% EMI, Easy EMI, etc.
The foremost is, avoid adding any further debts to your financial portfolio.
4. Goal-based Investments
Once you have started savings, you can invest them in getting a better return. Goals are the real fuel of investments; thus, you must fix a goal for which you can sacrifice for some time. You can contact your bank or any investment firm which provides you with the following options.
a) Fixed depositsb) Bondsc) Debt fundsd) Mutual Fundse) Goldf) Real Estateg) Shares
It is unnecessary to always aim for high-yielding investments. Understand the balance of low and high risk before investing.
5. Retirement Planning
This is the last step of financial planning which helps you in your retirement years. Most people forget this part as half of their lives fade away in paying EMI’s and debts. Here are some essential tips to secure your autumn years without relying only on your children.
a) Keep in mind to save a minimum of 15-20% of your monthly income as soon as you start earning.b) Invest a certain amount of your savings in an index fund for 20-30 years and add 10% extra each year. At the time of your retirement, the cumulative amount will be more than enough to secure the rest of your life.
Why do I Need to Have Financial Planning?
Financial planning is a step-by-step approach to managing one’s expenses and savings which benefit the individuals in the long term. Here are some of the major reasons why one should have financial planning.
This is the primary reason why financial planning is important in our lives. The money you save or invest can help you and your family in unfortunate circumstances.
b. Analyze your financial position
It is a great tool to study your current financial situation. You can analyze your income, expenses, and whether you can achieve your goals. This can help control unnecessary expenses and let you spend your hard-earned money wisely.
c. Family planning
Financial planning can take into account all your family incomes, debts, health insurance. In this way, you can achieve an effective family plan, such as planning your child’s education.
d. Dealing with an emergency
Creating an emergency fund through financial planning can help you deal with mishaps like natural disasters, job loss, and other economic crises.
At first, financial planning may sound like a tricky task. But, a handful of tips can help ease the job and let you save a lot of money.
Envisioning a secure future for themselves and their family is everyone’s right. Thankfully, effective financial planning can help you utilize your hard-earned money to achieve a fruitful life ahead. These strategies of financial planning are extremely useful for the salaried employee for an economically stable life.