8 Steps To Becoming A Financially Wise Woman
"Tuhina, I loved the diamond necklace you wore to Mr. Khera's party the other day, was it a gift from your doting boyfriend?"
Tuhina winked at me and said with a smile, "No, it was a gift from me to myself after my promotion last month."
I left what I was doing and rushed to her side, "Are you serious? How did you ever manage to reach this level of financial independence so early in life? I have been haggling my husband for the last ten years to get me a diamond solitaire but to no avail!"
Tuhina gave me a hug and said, “Being a financially wise woman is both empowering and complimentary, why don't you try to become one too? These steps will guide your forward."
Step 1- Know Your Financial Capabilities
What is your financial and educational background? Do you have it in you to take on new and aggressive?
Financial responsibilities? It is good to assess your money-earning capabilities accurately before taking the plunge. The combination of your attitude, skills, and self-efficacy is your financial capability and is needed to make decisions related to money that best fits circumstances of your life.
Step 2- Estimate Your Current Financial Standing
You first have to figure out where you are now, before worrying about where you want to go. This is done by tallying up the values of what you have and what you owe. You can take further risks if you have a regular and consistent source of income to take care of your daily needs.
If your net worth is going down then you are eroding your wealth and making it harder to go where you want to go. Get in touch with an investment banker to improve your portfolio returns, check out different freelancing options to fill up your free time, estimate your assets and liabilities to figure out your goals, go for a job change if needed!
Step 3- Create Meaningful Financial Goals
Setting short and long-term goals is an important step towards becoming financially secure. Setting short-term goals is important as it boosts you up and you gain the foundational knowledge you need to achieve large goals.
Everything happens slowly and gradually as it is said, “Slow and steady wins the race”. You cannot expect to earn millions in just a blink. Do not jump the gun. Make specific, measurable, attainable, relevant, and timely financial goals to enjoy success.
Step 4- Understand And Control Your Cash Flow
Try asking yourself the following questions while taking stock of your budget and financial flow. Which time of the month is best for making new purchases? Should you save or spend now? etc. It's always better to match your cash flows with your expenses to avoid trouble.
Here are some tips to save money:
- If you really want to buy something badly, sleep on it for a night. If you do not find it much attractive the other day, drop it.
- Always keep a buffer account where you put money which is saved after you have taken care of all the important needs in your life. Now spend this money on luxury and if the amount saved is less than what is required, do over-time to have money to buy luxury; you will know the worth of money in this way.
- Figure out how long it will take you to pay your debt.
- Cancel the services and memberships you no longer use.
- Avoid eating out and that too into expensive restaurants very often.
- Leave your debit/credit card at home and carry an absolute amount you would need when you go out.
- Keep yourself busy in other stuff and don’t spend your free time window shopping, this will avoid temptation and you will not be lured by nice things.
- Whenever you buy a new thing, say an electronics, think of a thing you already have and which is not of much use to you, sell it and cover some of the cost.
Step 5- Create Appropriate Cash Buffers
The best budget plans can also leave you stranded. Cash buffer includes 2 parts:
1. Livings on the previous month’s income- For example, keep the earnings of June safe to spend them in July. Do not touch that money in June. On 30th June take out that money and plan your budget according to it. The beauty of this is that you do not need to worry about any fluctuation in your earnings the next month (i.e. July), you already know how much money you have and you can plan accordingly.
2. Emergency fund- No one is ever aware of what emergency they could face in the future. So to keep yourself ready for any need or an emergency, maybe medical, and to keep yourself on a safer side, lock away a percentage of your income in recurring deposits or withdrawable FDs.
Step 6- Make Investment A Priority
Do not spend all that you earn. This is how you can invest your money wisely:
- GOLD- Gold is one of the oldest investment options. The conventional way is to buy gold in form of bars, coins, and jewelry. But with advancement and evolution of new investments options, you can also invest in gold deposit scheme, gold ETF, gold mutual fund etc.
- MUTUAL FUNDS- They are best for those who want to invest in equities and bond with a balance of risk and return. The best way to invest is to go through systematic investment plans.
- DIRECT EQUITY OR SHARE PURCHASE- This is for those who know how to analyze a share or stock before purchasing it.
- INITIAL PUBLIC OFFERING (IPO)- It can be of high profit if launched by a good and reputed company.
- PUBLIC PROVIDENT FUND (PPF)- PPF is a long term investment plan and is considered to be the safest of all. The profit earned is tax-free, which serves as the best benefit of PFF. The only drawback of PFF is that the investment can be withdrawn at the end of 6th year and not before that.
- UNIT LINKED INSURANCE PLANS- If you want to invests in debt and/or equity market and also have insurance at the same time Unity Linked Investment Plan is the best option for you.
- BONDS- Bonds come low risk and are tax-free. Zero-Coupon bonds are for those people who can let their money lie for a longer period of time.
- POST OFFICE SAVING SCHEME- It is a government supported saving scheme. Post Office Saving has zero risk but the profit is also low. It is suitable for people with regular income requirement.
Step 7- Enhance Your Knowledge Of Taxation
Taxation is used as the main tool to collect revenue, to achieve the economic and social objective and to redistribute income by the government.
By having the knowledge of taxation, an individual can identify their residence status purely based on a quantitative test. Learn the basics of taxation, return filing, deductions, exemptions, reconciliation of bank statements, and other accounting procedures to take care of financial compliances on your own.
Step 8 - Spend, Save, And Have Fun
Create smart money management strategies well in time and create a budget for a holiday. Keep saving as you spend on essentials or fulfill your dreams – that’s the only way to sort out financial headaches.
Tips to save money while having fun on a holiday:
- Bargain. Almost all big markets around the world have an option to bargain.
- Avoid unnecessary frills such as seat selection and priority boarding.
- Weight and manage your luggage so that you do not have to pay extra for overweight on flights.
- Take packed food from home.
I looked at her in amazement. "Tuhina, watch out for me now. I am going to move full throttle ahead on your lines - the men in my life can wait to get an expensive gift from me!"
R*****Very well explained...👍👍
U*****Yes it is good to follow this steps
T*****Yes it is correct
S*****In my opinion one must get some life insurances dine as it saves n cover the risks too....but it should be of govt. Sector as its transparent compared to pvt.sector insurances.
A*****Unit linked insurance plan on max life insurance best investment plan
J*****I being a financial advisor would NVR recommend my clients insurance as a means of investment rather insurance is a necessity for covering various kind of risks.
J*****Really sorry to say insurance in anyway means product for covering risk. For so many years insurance has been missold as an investment product.
B*****Why would you say that Jyotika Verma. Except for Term policies all other insurance policies are a means of savings n investment
J*****Nice article but would say UNIT LINKED INSURANCE PLANS or any kind of insurance should not be considered as a product of investment rather it should be taken as a measure to compensate the risk that may arise any time in future.