The Corona pandemic has changed the way we live, spend, save and invest. With the economy reeling under the impact of the lockdown, many people have been rendered jobless or have reduced incomes. Thousands of small businesses were forced to shut down their shop. For a large majority, the crisis drove home the importance of financial planning and saving up for times like these; something that we had been advised but mostly never paid much attention to.
We have put together some S.H.A.R.P theory tips to put you on the road to financial freedom. Small changes in the way you save and invest can go a long way in building that much-needed buffer, which can come handy during broken days.
1. Save every penny
The lockdown has led to a surge in essentialism and for many of us who are homebound, our expenses have fallen drastically owing to reduced travel, eating out and shopping. This should be a cue for better money management for you and your family as you sift out the essential expenses from the splurges. Experts feel that holding on to the money that you already have is more vital than earning higher numbers.
As a smart investor, reassess the priority areas in your life and set aside the rest of the funds. You can also take this time to look at your risk appetite, time horizon for investments and saving goals (like retirement plans, kid’s education, etc) and cash flow projections for the future.
2. Have a budget
Follow the 50-30-20 rule popularized by senator Elizabeth Warren in her much-acclaimed book, All your worth: The Ultimate Lifetime Money Plan. The rule is to know your exact take-home post taxes and fees and allocate it to spend 50 per cent on needs, 20 per cent for savings and the remaining 30 per cent on your wants.
You can alter this equation to suit your family needs and goals but the idea is to shift your priorities and see how much you can set aside every month towards creating a buffer which can keep you afloat in challenging times.
3. Avoid debt
Debt in the form of loans is one of the biggest pain-points for families as the burden of hefty EMIs prevents them from saving for the future. Take stock of your loans and all the balances you owe in order to prioritize repaying them. The ones attracting the highest interest must be paid off first.
A smart tip here is when allocating money for savings, also set aside a small sum for big-ticket purchases that you may want to make in the near future. Experts warn against taking loans and adopting what is known as the Reverse EMI approach. Try saving up every month starting today for an expensive purchase made a few months later.
4. Regular investing
One of the thumb rules for growing your wealth is setting aside a fixed amount of money at set intervals for savings. Systematic Investment Plans (SIPs) are a very effective tool to help you get into the habit of regular investments as they ensure that you are setting aside a pre-set amount every month.
Diversify your investments and even if the ups and downs of the economy are testing, hold on what you have and stay invested. Discipline has a huge role to play in getting the right returns out of your investments.
5. Perform periodic reviews
Make a clear record of all the financial holdings of your family, including bank accounts, investments, insurance, real estate exposures and even loans. This file must be updated at regular intervals to see what the present-day value of your assets is and also identify the ones which are not performing well.
Engage a financial planning specialist to help you sort out your portfolio based on your future goals and risk appetite. The can help you rebalance your portfolio and opt-out of investments, which are not giving the desired returns.