FINANCIAL PLANNING: Learn to manage money stressors

It’s been five years of being a financial educator and teaching people how they can manage money better. While it has been great to have impacted thousands of educated people in India, I find the level of financial literacy among the educated to be actually deteriorating. Knowledge levels on money management continue to be low and an investment bias towards traditional investments, which do not beat inflation, continues to exist.

Further, lifestyle and consumption-based spending and the feeling that as long as one can see the money, one will have enough for the future is stopping people from planning for their future. This attitude is prevalent in people up to their early forties. It is only when the big financial goals (like children’s higher education) are four to five years away, do people start thinking of doing something about their finances. This is a sure shot recipe for disaster.

If you do want to have a better financial life, you would need to start by attacking the five main money stressors.

Not being able to save – Are you sticking to your budget? Are you saving and investing at least 30% of your take home? If not, you need to keep an expense tracker and figure out where you can cut expenses. Stop using credit cards for a while and only spend on debit card. Keep a limit on how much you can spend on the debit card in a month.

Too many loans – How much of your income is going towards EMI? Do you have a plan for paying off debt? If not, make a list of all outstanding loans and start by paying off the most expensive one first. Set milestones for yourself and have a single-minded focus to pay off loans (except home loan) at the earliest.

No money for emergencies – So often I hear that at times of emergency, people use their credit cards and do not have access to their money. This is because of the tendency to tie up money in real estate and insurance policies, thus being left with very little liquidity. You need to have six months of expenses kept aside as a contingency fund. This could be in a liquid fund or a fixed deposit for those in lower tax bracket.

Not enough funds for financial goals – people sometimes give up on financial planning because they feel that they will not be able to build up the required corpus for financial goals simply because they don’t earn enough. Well, something is better than nothing. There are no loans for retirement and if you start saving for retirement early, you would still be good. Building up knowledge on investment products is important, as you need to invest in products, which beat inflation, compound and give tax efficient returns.

Too taxing to manage everything – help is available. But you need to pay for it. Just like you pay for every service you use elsewhere, you need to pay for financial advise. Find a fee only financial planner who can help you with creating a financial plan around your needs and your life plan. A financial advisor can also help navigate through the myriad of investment options especially, mutual funds.

Finally come up with your own money mantra that will motivate you to manage money better. Mine is “being debt free and using my money to create more time for myself to pursue my interests”.