All was well and smooth until a few months back and none of us had any idea that the world would change so much and so quickly in such a short period. The COVID-19 pandemic has indeed turned our lives upside down and as we continue to adapt ourselves to learning the finer tips of social distancing and become more diligent with our hygiene practices if there is anything that this whole situation has taught us, it is to be Atma Nirbhar.
Lockdown has resulted in many firsts for many of you and what may have seemed like a Herculean task for you in pre-COVID-19 days is now not all that difficult and is surprisingly manageable. Just as we continue to remain Atma Nirbhar for our safety and health, being financially Atma Nirbhar is equally important in life and even more now when we are surrounded by uncertainties all around us.
Here are a few simple yet effective tips and techniques to help you become financially independent -
Set clear financial goals
Each one of you may have different goals to achieve and financial independence is the common thread for everyone but it is not a clear and specific goal but general desire. So, first and foremost you need to set up specific, time-bound goals. The more specific you are about your goal, the higher is the probability of achieving it in the desired time frame.
Analyse your spending and create a budget
After having listed your goals, you must start working towards them. The last two months you have mostly been spending on essentials and by now you have an idea of your discretionary expenses. Create a budget that covers all your essentials, then allocate a percentage of your income for savings and then the residual income can be used for your wants. Ideally, you should aim to save at least 25% to 30% of your income every month.
Create a diversified portfolio
Savings alone will not help you achieve your goals. You have to invest your savings in various assets to achieve your investment objectives. Your aim should be to create a well-diversified portfolio with allocation in different assets like equity, debt, cash, gold, etc. as each asset plays an important role in the portfolio.
The proportion of investment in each asset would vary as per your risk-taking abilities, age, time horizon for investment, etc.
Achieve asset allocation through mutual funds
There are different mutual fund schemes to take care of your different investment needs across different asset classes.
Investments in equity schemes can help create wealth as equities have the potential of delivering reasonable returns compared to other asset classes in the long run. Debt mutual fund schemes may provide relatively less volatility to your portfolio in volatile markets. Investments in Gold ETFs can also provide much needed diversification to your overall portfolio.
Automate your investments
Automating your savings in different investments will help curb the urge to spend it on unnecessary purchases. SIPs in mutual funds are one of the easiest ways to put your investments in autopilot mode. You can opt for SIPs in different schemes depending upon your investment objective and the time horizon of investment.
Reduce the debt component
Taking a loan for creating a long-term asset, such as a house, is justifiable. But having dues on your credit cards or taking personal loans for financing luxury expenses is not healthy. The interest outflow is huge and can severely dent your savings.
Review your investments from time to time
Reviewing your investments is important to see that your investments are helping you to stay on track or need some adjustments for optimal results.
Every challenge brings an opportunity and it is upon you how you make the most of the opportunity before you. In today’s fast-paced life, quarantining at home with your family has allowed you to think and reflect. Use this time, to set your financial goals.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.