Are you familiar with SIPs? Every passing month adds the same amount to your investments – and yet, the end result looks very different from what your monthly contribution is, isn’t that right? This is the power of habit – and habits are very similar to SIPs, except one point of difference. Habits are a bigger investment than any you can ever make with money, or in the markets. Do you know why?
Because habits bring lasting change. Good habits take you to endless heights, while bad habits drown you to endless depths. This new year feels like the start of a new journey. What better way to invest, than by investing in a lasting change? A change towards building a better future – for yourself, and your loved ones. That’s why, here are five habits that you can inculcate this coming year, to give a new direction to your financial life.
Spending isn’t intrinsically bad – afterall, you earn your money to be able to spend on things. But there is a difference between unhealthy spending and healthy spending. There are many ways to understand as to what your current spending habits are like. Are you constantly in debt, or borrowing money? Do you always have to spend money in order to enjoy yourself? Or do you spend carelessly but always feel like you can’t spend on things that truly matter?
If you answered yes to some or all of these questions, then you probably have an unhealthy spending habit. Congratulations, you have already taken the first step towards changing it, and that is, by identifying it. The next step is to pinpoint what you spend on – invest in a budgeting app, or use a free one – and make a habit of logging your expenses, every time you spend. Sounds simple right? You bet it is. The last step to inculcating this habit is to log your very first spend, and repeat when you spend again!
If spending habits determine the shape of your bank account at the end of the month, your saving habits will continue to, until the end of your life. If you don’t save money, you will be stuck in an endless cycle of earn-and-spend. But sometime, you will need a break – perhaps to take a break from work, for attending an event, going on a long vacation, and even for retirement. Living paycheck-to-paycheck might be inevitable for some, but most can afford to set down a small sum of money – even if it is as small as 500 rupees a month.
Savings need to be done for everything – from emergency planning to crossing expensive milestones like buying a car or a house, to fund your own retirement, or even buying yourself a new piece of jewelry. Savings are the key to accomplishing big things in life. If you are unsure as to how much you should save, there are some basic guidelines that you can follow. If you are saving more than 20% of your monthly income, you are doing pretty good.
But if you are managing to save less than 10% of your income, or worse, none of it – then you need a change in spending habits. Budgeting for the coming month is an essential part of planning savings. Make goals that motivate you to save, and then set an action plan in place – perhaps a monthly reminder to set aside some of your savings in a second bank account.
Maintaining a healthy spending and saving habit will usually build a good credit profile for you. But there are scenarios where borrowing might be inevitable – perhaps to fund your first home purchase, or to cover for an unforeseen emergency (although you should keep a part of your savings aside as an emergency fund for these very situations). In such scenarios, don’t forget to make timely repayments on your loans.
Either set an auto-debit mechanism in place, or a reminder. Also remember to not make expensive purchases with loans. Usually, saving for them and setting money aside on a regular basis while you wait to be able to pay for it entirely is a better idea. Borrowing large sums of money to fund purchases that decline in value is a bad financial decision, through and through – avoid such mistakes in your new financial life. Perhaps, the next section will put this in a better perspective for you.
Borrowing makes your money work against you. On the other hand, investments make the money you earn, work for you. If you haven’t been able to recognize the power of investing, then look back at our savings example – we were talking about saving 500 rupees a month. Sounds too little for today’s age, doesn’t it? You can perhaps buy 4 bars of chocolate with that money. But if you invest it in an SIP every month for the next 30 years, then you will have over 35 lakhs at the end of your game plan. You would have saved and invested only 1.8 lakhs, but your money works for you to create over 18 times its original value.
This is the power of investing, and investment should definitely be a habit. Remember, one-off investments, no matter how big they are, will never match up to the level of growth that regular, small investments do. If you are wondering as to where to begin, then mutual funds and stocks are a great place to start, as equity markets can open doors to excellent growth opportunities. The good news is that you can set up your investments through automatic payments too, so that you never miss out your installments.
These four habits, while seemingly trivial, can make or break your financial life. This new year, make a start towards something new, by understanding your spendings, adopting healthy credit habits, saving an adequate sum of money, and investing it regularly. Simple as it may sound, it is a proven track towards financial prosperity in the long run.
In this new year, begin your financial journey, with Angel Broking ke #SmartSaude – open a demat account, and start investing in a better tomorrow – for yourself, and for your loved ones. We are with you on this journey!