A complete guide to managing your finances better

It doesn’t matter if you are crunching numbers at a desk or organising the coolest events for your livelihood, the fact is that all of us need to be able to manage our finances better and secure our future. To make this simpler for all of us, let’s start by tackling this by income.

For beginners

If you are earning just under ₹5 lakh per annum (LPA), you have to focus on embracing the budget, enhancing your emergency fund, and becoming besties with SIPs (Systematic Investment Plans). Let’s be honest, you’re not going to get anywhere unless you craft a beautiful budget (practical too) and stick to it! List down all your expenses and use the 50-30-20 rule to guide you. According to this rule, not more than 50 per cent of your income should go towards needs such as rent and electricity; not more than 30 per cent to wants, like travel and shopping; and at least 20 per cent should go towards your investments.  

Now, at this stage with a limited income, this may be difficult, but that is your ideal, so start working towards it. You also need to carve out an emergency fund which should be made up of at least three to six months of your monthly income, stashed aside in a different savings account (that you don’t touch). This is in case of, duh, an emergency like if you get laid off! Last but not least, SIPs are your best friends! They inculcate a consistent habit of investing, which you need to develop, and they can be started with as little as ₹500! Pick the right mutual fund according to your financial goals, risk appetite, and liquidity requirements and get going. You will be surprised how quickly this amount adds up.

For intermediaries 

If you are in the mid-range making between ₹5 lakh and ₹12 lakh per annum, you need to up your game. Assuming you already have the budget ready, the emergency fund stashed, and basic SIPs down, you now need to craft a credit history, forge a diversified portfolio, and explore some side hustles! As you climb the corporate and/or income ladder, you have to make sure you start working on crafting your credit history. This means, using your credit cards wisely, racking up points, and making sure all your EMIs and bills are paid on time, so you have a good credit score to be able to get loans in the future at a great interest rate.

You also need to pick different investment vehicles for your portfolio and make them strong enough to weather all storms that may come your way! The market, economy, and investing world in general can be a rollercoaster. You just have to strap your investments in safely and you’ll be riding it to a bright future. Finally, who doesn’t like some extra income on the side to splurge or help your investments grow? As you climb the ladder of success, you may see yourself excelling in a particular skill. Work on
developing and monetising it. In this day and age of freelancing, starting a side hustle will be an extra cog in your wheel that can help you move faster towards your goals. 

Ultimately, if you are a financial high-roller in the ₹12 to ₹20 LPA bracket, you ought to supercharge your investments. But beware of lifestyle inflation and debt trap! After you have got a hang of budgeting, emergency fund, credit history, diversified portfolio, and side hustles, it is time to master debt. Debt can be your friend if you use it wisely. Use it to build assets and stay away from high-interest debt traps. Pay all your EMIs on time and make sure your EMIs don’t add up to more than 30 per cent to 40 per cent of your income. As you join the high-roller gang, some new avenues for investments open up for you. You can catapult your portfolio onto the next level by taking a chance on them.

Use the 90-10 rule to make sure that 90 per cent of your investments are in vanilla assets like FDs, PPF, mutual funds, stocks, and bonds and only 10 per cent in the ‘something extra’ like REITs or private equity. Something we all forget is that lifestyle inflation is real. As you start making more money, you tend to think that you can even spend more because you’ve earned it! The sky is the limit with spending, but making that money is difficult and tends to have a ceiling. So keep your expenses in check and even though the pie may have grown, stick to those budgeting percentages we talked about. There you have it!

Remember, no matter which bracket you’re in, the game is yours to win. So, suit up, grab your financial bat, and hit those money milestones out of the park! May your wallets be fat, your financial goals fatter, and your retirement peaceful.

Balance the books

1. Create a vision board of your financial goals. It will help you understand where you need to invest and when you can realistically get there.

2. Get adequate medical insurance for every member of your family and term insurance for yourself (if you have dependents).

3. Tax plan! Don’t let your hard-earned money be taken away by the big brother. Save tax wherever you can.

This article is authored by Sayali Rai who is an entrepreneur, digital content creator and the founder of FinCocktail. The start-up is a simple guide to personal finance. 

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