Money management—be it for your business or home—is no cakewalk. One wrong step and you can lose control of your finances just like that. Runway debt including credit card debt, car loans, personal loans etc. can become a big problem if they are not handled responsibly and with discipline. Do not worry if you have somehow lost control of your finances. You can still get it back on track by following a few simple steps.
Table of Contents
Draw a budget:
This is the first and most basic step in getting back control of your money. Sit down with a pen and paper and draw a budget. List your sources of income on one side and expenses on the other. Make sure that the difference between the two is zero. People without a budget end up in a cash crunch frequently. When you draw a budget, be sure of where you need to spend and where you can save.
This is an important aspect of financial discipline. You must maintain an emergency fund and stick with it. An ideal emergency fund should comprise at least two months’ salary for a salaried person and money worth three months’ expenses for a self-employed person. Once you have an emergency fund in place, it is important to use it only for an emergency. Expenses that can be projected such as annual insurance payments do not qualify to be an emergency; you should put them in the budget.
Consolidate your debt and pay it off:
Multiple loans running is one of the common reasons for many people losing control of their finances. If you too are in a similar situation, then turn to an instant loan app for debt consolidation. You may take a personal loan and direct that money to pay off all your other loans. There are two advantages of doing this—first, it will increase the time for you to pay off debts and second, it will reduce your monthly outflow of money, giving you scope to manage your money better.
Six months’ income loss fund:
Once you are done paying off all your debt, you should divert the money that you were paying as the EMI toward an income loss fund. In case of job loss or any other income loss situation, you can use money from this fund to meet your needs. This should be kept over and above the emergency fund, and unlike the emergency fund which should be kept handy, this fund can be saved as a fixed deposit.
Keep aside 15% as retirement savings:
It is very important to plan ahead and save for retirement. Once you have saved the income loss fund, start saving for retirement. Since it is a long-term investment, consider starting a public provident fund. Also, take a retirement plan from an insurance company. Divert the money used for the income loss fund toward retirement savings. If there is a shortfall then top off from your income to meet the 15% of your income target.
Save for children’s education:
Any parent would agree on the sheer magnitude of responsibility children’s education is. Today, it forms a crucial aspect of the financial plan for many people. Presently, both school and higher education in India are quite expensive, and if you have plans of sending your child abroad for education, then the cost is even higher. Therefore, start saving now for a smoother sail tomorrow.
Remember to account for fun:
As they say, “All work and no play makes Jack a dull boy.” It is highly impractical to keep saving for tomorrow without enjoying the today. It is only normal to want to spend on things you and your family want, and may not need. Denying them the small joys can cause unnecessary frustration, eventually impacting the peace in the family. Therefore, account for everyone’s idea of fun and good living, and keep putting aside money to splurge now and then.
Proper financial management is the key to a safe future. However, many people do not realise this. A personal loan, when used wisely and with discipline, can be a great way to stabilise your financial condition and secure your future.