We all desire a well-planned and fulfilling financial life. But rising spending and inflationary pressures are weighing on our finances and plans. However, this is one side of the coin. The other factor, an important one that usually goes unnoticed, is your money management behavior that affects your finances. When proper attention is paid to financial habits, one becomes a disciplined investor and will be better able to attain financial freedom.
Good and consistent financial habits bear long-term fruits and enable your investments to achieve your various goals. It’s the start of the new fiscal year and there’s no better time than now to correct your mistakes and streamline your investments by adopting simple habits to keep your investments disciplined.
Here are five financial habits you should adopt to make your investments work.
Budgeting and creation of emergency bodies
Knowing your cash inflows and outflows is essential for financial planning. You can face the consequences without budgeting. Start with:
- Write down your estimated income and expenses for the year.
- Distinguish between your needs and desires.
- Note the costs that can be cut to save money.
In the meantime, it’s wise to set aside a quarter of your total income, if not more, for growth-oriented investing. If you don’t have one, systematically build an emergency fund and keep it handy in your savings account or as a time deposit. Ideally, your emergency fund should be no less than six times your monthly income.
Don’t add inappropriate liabilities
Adding financial liabilities increases your stress, which can affect your financial planning. It means your expenses are negating your income, which isn’t conducive to healthy finances. Decide on need-based purchases that are necessary and cannot be ignored. If there are many, try to prioritize and focus on immediate, unavoidable needs.
Have a consistent and systematic approach
A consistent systematic approach always leads to excellent results in the long term. If you have your regular investments, leave them intact. Handle your SIPs, insurance premium payments, and other investments on a regular basis. If you have credit, don’t miss your EMIs. If budgeting allows, pay off the loan in advance on a regular basis to get out of debt faster. Paying your credit card bills on time must be a priority. This helps you maintain a healthy credit score which increases your credit score. These small but meaningful steps keep your liabilities under control, which ultimately helps with financial planning.
Avoid early withdrawals
Investments made should always be targeted with a fixed term. Early withdrawals get you started, and restarting may not always be easy. Additionally, an earlier than planned or partial payout will not let you see the benefits of compound interest and could potentially derail your plan. This is where an emergency fund comes to your rescue, which you can dissolve in urgent times. You can use credit cards when the situation calls for short-term credit and you can conveniently pay it off in your next billing cycle. So don’t keep track of your investments for every sporadic and unexpected need. Investing is long term and cash out promotions don’t make your money work for you.
Increase your investments regularly
Every cent invested that is saved creates wealth. It can often be observed that investors do not check whether they want to increase the quantity of their investments. This is not good practice. It’s worth taking a look at your finances over the years, and as your income increases, consider increasing your investments. For example, on a salary of Rs 40,000, try to invest at least 20 percent (Rs 8,000). And if income increases to Rs 50,000, your investment should increase to Rs 10,000 and so on. This helps keep your investment journey on a strong course that leads to future financial independence.
Small but regular steps are essential to restoring discipline in your financial behavior. A few deep thoughts, regular review, and sticking to the basics without overwhelming your finances can help you go a long way. Not only does it boost your confidence and push you to do better, you feel empowered as financial stress is kept at bay. Try it.
The author is the CEO of BankBazaar.com. The views expressed are those of the author.