Health is wealth is a very famous proverb. It means being physically and financially healthy is very critical. Just like being physically fit can reduce medical bills similarly being financially healthy can help ensure financial security. Financial situations are unique to everyone. There are a lot of different aspects that contribute to an individual’s overall financial stability and well-being.
Create a budget
The financial story begins with looking into your current finances. What do you spend your money on, where are you getting your income etc. By tracking these factors, you can have a better sense of your financial picture. Create a budget that will help you increase your savings and account your expenses. Always create realistic budgets, creating unrealistic budgets can make it impossible to stick with.
Set investment goals
Setting investment goals can help achieve financial stability. Not setting investment goals is like sitting in a car without any destination in mind, in all probability you will end up driving in circles and reach nowhere. Your goal based financial planning should be specific, time-bound, achievable, and realistic.
Create an emergency fund
An emergency fund is essentially money that’s been set aside to cover life’s unexpected events. One should always consider the possibility of emergencies that might occur. An emergency fund helps in dealing with unexpected expenses. While it is quite possible that you would not need the whole emergency fund, having extra funds is better during emergency than falling short.
Investments to grow your savings
Choosing the right investments based on your requirement is an essential part for financial stability. One should consider duration and the risk profile during choosing of the investment. If one is saving for a long term – equity mutual fund or equity oriented investments is a more suitable option to reach your financial goal.
Diversify your portfolio
Spreading your investments can help reduce the overall risk to your investment. The portfolio should be diversified across various options in the same asset class. Eg: In case of equity investments the various categories are- Flexi cap funds, Large cap funds, Mid cap funds etc.
Don’t change investments to chase high returns
One might be tempted to consider changing their current investments to achieve high returns made by someone else. This can however change the overall performance of your investment portfolio. There is no guarantee that an investment that is currently performing well will continue. Timing the market is difficult. To ensure the investments have adequate time to grow one should stick with the investment for long term.
Stick with your long term plan
Even when things aren’t going well, follow through. Stick with it even if you fall off for weeks, months or years. Don’t worry about doing things perfectly. Do your best and try to get just a little better every day.
Financial stability is the freedom to live life on your terms without worrying about how you’ll pay your next bill.