You could use this Independence Day to insulate yourself against financial insecurities by planning right
Reviled as the root cause of many an evil, money is often blamed for the emergence of ‘corporate slaves’ who have mortgaged precious moments of their lives for ‘materialistic’ gains. However, the fact is that money can fortify the sense of financial independence by ensuring peace of mind, provided you adopt a prudent approach.
Here are five money moves that can keep you away from the shackles of financial woes and help you feel truly ‘free’:
Save more, invest systematically
‘Spend less, save more’ goes the age-old wisdom. However, following this axiom diligently will not necessarily guarantee financial independence. If you end up directing your savings into low-yielding instruments like fixed deposits or post office avenues, you might fall short of achieving your goals. You need to consider equity and equity-oriented mutual funds to create wealth in the long term. While the risk of market fluctuations looms large in the short term, equities are regarded as the best-performing asset class over the long term. More importantly, adopt the systematic investment (SIP) approach to investing to eliminate the temptation to time the market. Your investment stands to benefit from the power of compounding and rupee-cost averaging, putting you firmly on track to achieving your goals - the surest sign of being financially independent.
Prepare for emergencies
Many individuals are completely underprepared for financial emergencies, walking straight into a debt trap as a result. To be free of financial encumbrances, you must park a sum that can cover at least six months’ expenses in a fixed deposit or a liquid fund that can be easily redeemed.
Insure to Protect
Life, personal accident and health insurance constitute key financial planning necessities of any individual who is determined to avoid relying on relatives, friends or lenders for funds during emergencies arising out of death or hospitalisation. Every individual with dependents should buy an adequate pure protection term cover, while health insurance is a must for all, irrespective of age-group and life stage. At a minimal cost, an accidental death and disability cover can not only foot hospitalisation bills, but also compensate any loss of income during the period, preventing a financial crisis.
Avoid dependence on loans
Not only should you adhere to the ‘spend less’ adage, but also make sure that you use the right tool to fund your purchases. Avoid credit cards to fund consumption and discretionary needs; stick to debit cards or prepaid wallets instead. While home loans are ‘good’ loans as they create a valuable asset, taking a personal loan to finance business, consumption or even investment needs can leave you in debt, and goals in jeopardy.
Keep retirement planning in focus
Retiring with enough resources, without having to depend on others during the golden years, is perhaps the most cherished desire of most individuals. Yet, many allow this goal to take a backseat during their working years, as children’s education, house purchase and meeting regular expenses are accorded priority. Instead, you must save towards this goal as soon as you start drawing income rather than waiting till enter your 40s or worse, 50s. Do not forget to factor in the impact of inflation while building a retirement kitty. To lead an anxiety-free retired life, ensure that you plan for healthcare costs and lifestyle spends, in addition to routine expenses. Also, since it is a long-term goal, you can afford to take risks and invest in more remunerative instruments.