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Started earning recently? Congratulations! Did you ever think of putting a portion of your salary in a life insurance policy or in a mutual fund as you began earning? No?
Well, you are not alone! Most people prioritise partying, going on weekend getaways, spending on expensive apparel, buying trendy gadgets, dinners, and movies as soon as they begin to get paychecks. Amidst this, securing your financial future takes a backseat.
Your parents or elders might have asked you to cut down on spending too much. Time and again, you are reminded of the advantages of spending money wisely by them. And for all the right reasons.
Reasons for spending smartly
Life has never been more unpredictable than it is today. With changes occurring dynamically across the globe, there is no guarantee of what tomorrow brings. The recent pandemic has left millions of people struggling to survive. Some lost their jobs, while others had to deal with pay cuts and slow business. You never know when the next pandemic or an economic lowdown will strike. And, you don’t want to be rendered helpless at some time.
Even dreams are costly these days. You need Lakh and even crores to fulfil your wish of buying a home, getting a car, or living a comfortable retirement life. Let’s not forget the milestones of your child’s education or marriage.
Although there’s nothing wrong with spending on things you love, it is important to invest some time in planning for your dreams, living a cushy life and securing yourself and your family against unforeseen circumstances.
The good news is that you don’t have to be an expert in financial planning! All you need is to conduct a salary analysis and draw a plan to manage your income wisely.
Here are five tips for managing your expenses
Identify Your Current Needs and Future Goals
How much money do you need on a day to day basis? What are your dreams? Do you have any short-term goals in mind?
Ask yourself these questions to determine the amount of money you need currently and in the future. For instance, you have utility bills to pay on a monthly basis or need to keep aside some amount for recreational activities. These are your everyday financial requirements. You also need to account for future goals. Let’s say you plan to buy a house in the next 10 years or plan to start a family after 5 years.
Make a list of such financial objectives to get an estimate of the sum you need to save and accumulate.
Create a Salary Spending Plan
Once you have an estimation of your overall financial requirements, proceed to create a spending plan or a budget. To do this, make a note of your income, fixed expenses and variable expenses.
The 50-30-20 rule can be extremely beneficial to conduct a salary analysis and manage it efficiently. When you apply this formula, you are allocating the money you earn into three major categories instead of dividing it into hundreds of things. These categories include fixed costs, flexible expenses and financial goals.
Keep 50% of your salary for fixed expenses like rent, utility bills, essentials, etc. 30% can be kept for flexible costs like eating out. The remaining 20% goes toward the financial goals that help you develop a rich financial future, such as in a guaranteed1 return plan for retirement, investments and emergency funds.
Buy a Life Insurance Policy
Your salary spending plan is incomplete without life insurance. Death, accidents, and illness usually come without warning. In the event where you are no longer able to provide for your family and children, they will suffer emotionally as well as financially. This is especially true if you are the only earning member in your family.
Life insurance may be considered a way to "spend your salary wisely," as it is primarily a tool for providing financial protection to your loved ones in the event of your unexpected death. Since life insurance can have financial planning benefits, such as helping to pay for final expenses or leaving a legacy for your beneficiaries, it is viewed as a means of spending your salary to gain financial security for your loved ones.
It is a way to help ensure that your loved ones are taken care of financially if you die, which can provide peace of mind and financial security for you and your family.
Buying life insurance can be a smart financial decision for several reasons:
Protecting your family: The primary reason to buy life insurance is to provide financial protection to your loved ones in the event of your death. Life insurance can help cover expenses such as final costs, mortgage payments, and everyday living expenses. This can ensure that your loved ones are not left with a financial burden.
Estate planning: Life insurance can also be used as a tool for estate planning. For example, you can use a life insurance policy to help pay estate taxes and other expenses, which can help preserve the value of your estate for your beneficiaries.
Potential cash value growth: Some types of life insurance, such as whole life insurance, have a cash value component that can grow over time. This cash value can be used as a source of funding for various purposes, such as paying for a child's college education or providing an additional source of retirement income.
Tax* benefits: Life insurance premiums can offer tax benefits, while the death benefits and maturity benefits on some types of policies may be tax-free in the hands of the beneficiaries.
Set aside some amount of your salary in insuring your life and health to make sure you and your family are taken care of in an unfortunate situation. If you are young and healthy, then you can also opt for savings insurance options that help you safeguard your loved ones and create wealth for your future goals. You also get riders# to increase the protection and cover for your spouse. You can buy and pay for it in a few clicks with TATA AIA online premium facility.
Begin Investing
There’s a reason why experts stress investing early. The more years in your hand, the better the returns you gain. You can also take advantage of riskier investment options with the potential for greater returns as you are in a better position to take some risk.
Let the money you earn work for you by investing in market-linked securities such as equity stocks, debt instruments, or mutual funds, depending on your goals. Unit linked insurance plans are also a great option to save for life goals. If you have a retirement plan in mind, then a guaranteed1 return plan can be an ideal investment option.
Monitor and Treat Yourself
Once you have started spending your salary wisely, you need to monitor it from time to time; else, there are high chances that your budget might go for a toss. As you implement your salary spending plan, keep track of your progress and make changes wherever necessary. For instance, you might have received a raise, or you need to cut down on certain expenses. This calls for certain amendments to your plan.
At the same time, do not become too rigid. Do make some space in your budget for a vacation or purchase your favourite item from an international brand. Most importantly, reward yourself by indulging in things you love to celebrate your progress.
Following these simple measures to manage your income will help you reap one of the biggest advantages of spending money wisely; financial independence, among many others.
L&C/Advt/2023/Feb/0526
