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Start Managing Your Finances In 7 Steps

Start Managing Your Finances In 7 Steps

Are your finances in a mess? Then it’s high time, you sort them out. Just follow this step-by-step guide and get started already

Step #1. List out your incomes and expenses

You could be a salaried professional,  a housewife, a businesswoman or even a freelancer but the first step to achieve financial freedom is knowing where you stand. To do this, note down the amount you get from all your income sources, then list all your expenses below that. To get a better understanding of where you stand, you can even categorize the expenses based on their nature, such as necessities and luxuries or fixed and discretionary.  So expenses on house rent can be categorized as a fixed expense or a necessity. But paying for a movie would be categorized under discretionary or luxury expenses. Don’t only include cash expenses but also all your credit card expenses as well.

If you’re a  housewife you might think a lot of this information isn’t relevant to you because you don’t earn, but it’s very much relevant. In fact, it is well established that housewives are great at running a house on a budget. So, note down the amount you receive every month, record all expenses under it and find out how much you can save per month. Don’t make the mistake of stashing these savings in your cupboard (remember demonitization🙈), open a bank account instead and save it all there.

Step #2. Find out what you own and owe

To know exactly where you stand financially, other than knowing your daily income and expenses you’ll also need to know what you own and owe. If your husband or father has been helping you manage your finances, you can get most of this information from them.

Fair warning, this step can be intimidating, awkward or overwhelming, but don’t let that stop you from becoming financially independent. Brace yourself for asking these questions multiple times. At least at some point, you’ll get all your answers, and trust me it will be worth it.

You could start off by a simple dinner table conversation where you ask basic questions like –

  • Are there any assets such as gold, property, shares under your name?
  • If yes where are the papers?
  • Are you insured under any policy?
  • Do you have medical insurance?
  • Along with the assets, also list out any debts that you owe such as a home loan or an education loan that needs to be paid up.

⬅This information will help you make good investment decisions. Alternatively, if you’re consulting an investment advisor, they’ll be thankful to you for being prepared with such information since it equips them to give you better advice. To know more read our article- ‘What to do before investing’.

Step #3. Time to cut down on some expenses if you’re barely saving anything

Track your monthly incomes and expenses for 3 months to understand how much you can save per month. If you’re barely saving anything, take that as a gentle reminder from your bank account telling you to get your financial act together.

Figure ways in which you can cut down on some expenses – For instance, you could buy groceries in bulk, you could take up a cheaper internet plan, put a pause on shopping and cut down on a few TV subscriptions.

We know this step might even take a toll on your social life, but don’t give in to the temptations of splurging. Its, actually a lot like cheating on your diet, not worth all the efforts you’ve put to get where you are. So cut down your expenses like you would your calories, it’ll be tough to follow but shows great future results.🥗

Pro Tip– One should ideally save at least 20% of their income or save their age. So if you’re 30 save 30% of your income and the remaining 70% can be used to meet all your expenses.

Step #4. Split the saved portion into cash for investing and cash for emergencies 

So, if you’re saving 20% split this 20% into liquid cash (aka ‘emergency fund’) and the remaining 80% can be locked into investments. The liquid cash can be saved in a bank savings account which is easily accessible and the rest can be invested in stocks, bonds or mutual funds. Before investing, you might need a demat account to hold your investments in an electronic form. Visit your bank or a share brokerage company like Motilal Oswal to open one. 

Experts advice keeping aside at least 3 to 6 months worth of expenses in your emergency fund. So if you’re monthly expenses are Rs. 30,000 your emergency fund must be at least Rs. 90,000. Considering this advice, you might not be able to build an emergency fund in a few months, it is an outcome of continuous and diligent savings of many months. It is even okay to prioritize building an emergency fund over investments for a while because emergency funds are extremely important for a rainy day. An emergency fund is a safety net and can ONLY be used for serious emergencies for example if you suddenly lose your job. So don’t be tempted to dip into it for luxury expenses such as a holiday or buying a gadget.

While it ideal to have at least 3-6 months worth your expenses in cash as an emergency fund, the size might differ from person to person based on their circumstances.

For instance, people having health insurance wouldn’t need a big emergency fund for medical emergencies like surgery. But they need to account for out of hospital expenses such as medicines.  Or some people who live on rent might need to account for rental expenses for a few months in case they suddenly lose their job. But this might not be a problem for those who own a house. Considering all these factors based on your personal lifestyle estimate the exact size of your emergency fund.

Know that investments (even fixed deposits & mutual funds)  don’t form a part of your emergency fund because they can’t be converted into cash i.e. they’re not liquid and easily accessible.

Step #5. Record all your passwords and bill due dates in an excel sheet

Once you’ve got your accounts in place store their (bank account, net banking account, demat account) login details in a google sheet. Along with these, store any important dates such as bill due dates and expiry dates. This way you’ll never miss a bill payment and you will easily avoid paying penalty charges. If you’re forgetful you can even set up the auto-payment feature for some of your bills. 

Step #6: Organize all your financial documents

Once you’ve got all the information about what you own & owe from your husband and know where you stand financially, consider that half the battle is already won.  Now the next step is a really satisfying experience, especially for those who love organizing.

This step involves storing digital and physical copies of all financial documents like bank statements, credit card statements, insurance policy, share certificates etc. in a safe space and remember where you’ve kept them. You can further compartmentalize these documents into –

  1. Bank account documents such as bank statements and credit card statements
  2. Investments and asset related documents such as share certificates, mutual fund statements, gold certificates, property ownership documents
  3. Tax documents such as Form 16, Form 16A, tax receipts
  4. Estate planning documents such as your will, insurance documents.

These will be handy when you’re meeting a financial advisor for the first time. Think of this like carrying your previous health records to a doctor, similarly, these financial documents will help improve your financial health.

Step #7. Meet the people who handle your money:

Yay! You’ve reached the most exciting part of the process – the investing and growing your money part. 

Don’t worry if you’re intimidated by this step (and most of us are),  there are many people in the finance world who can help you out. So it’s best to seek advice from them. Start off with a financial advisor who will give you advice on where to invest based on your financial standing. 

Apart from an advisor there are other professionals in the finance world that can help you out with more specific aspects of your finances, such as a chartered accountant will help you with tax planning, a broker will help you with the stock markets etc. Click here to know more about them so you know which person to approach for specific financial doubts. 

All this is good enough to help you get started. Once you’ve got these basics covered you’re good to go. 

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Talkative, clumsy, punny, intuitive are just a few buzzes of this queen bee. An aspiring business journalist looking to find her throne in the corporate world.

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