6 Financial Habits you should start today!

Good financial habits are the building blocks of your financial stability and financial security. Financial habits simply implies to making small changes in the way you manage your personal finances.

When I got into my first job,I was not much aware about the personal finance world. Slowly and gradually, the picture became more clear and the financial habits that I adopted few years back, are still helping me to handle my finances in a better and a disciplined way.

There is nothing magical you need to do, only a positive attitude and a simple change in your mindset can transform your thoughts into good financial habits.

So,don’t miss these 6 Financial habits that are really essential for your financial growth :

6 Financial Habits that are essential for your Financial well-being

financial habits

1. Have a Budget and stick to it :

This is the first and the foremost financial habit that you need to build. Budgeting is the stepping stone towards your financial freedom. Simply stated, a budget is an estimate of your earnings and expenses during a particular period of time. If you have a fixed budget, you can approach your financial goals easily.

Set a budget for yourself based on your :

  • Monthly Income : How much is your regular income ? Do you have any alternate source of income or passive income as well ?
  • Monthly expenses : Rent, Mobile bills, electricity expenses, Loan EMIs, Groceries, clothing, entertainment etc.
  • Monthly Savings : How much can you practically save from your monthly income ?

You can anyways make minor adjustments to your budget as per you convenience. But, not having a budget is no excuse.

2. Live within your means :

This is another financial habit that if ignored can land you in financial troubles, if not now may be sometime later. So, follow this simple rule : Earn more and spend less. The earlier you learn this, the happier you will be.

Beware of little expenses. A small leak will sink a great ship as quoted by Benjamin Franklin.

Few simple ways to live within your means are :

  • Avoid impulsive buying and control your emotions while spending.
  • Avoid overspending with your credit card.
  • Keep track of your expenditure on regular basis.

Once you make yourself aware of how to spend less, you can start putting money aside to secure your future.

3. Pay all your bills on time :

This is a small but a very crucial part of your financial life. Sometimes, things get delayed just because of our laziness or not having enough time for it. Timely submission of any kind of bills before their due date is a very good habit that brings financial discipline and keeps you organised.

You can anyhow pay your bills with late charges and penalties, that might not seem to be very high to you. But, why to pay extra when you can avoid it by simple management.

There are so many ways to make sure your bills are paid on time :

  • Set reminders on your mobile.
  • Automate the payments of your bills.
  • Check your accounts regularly so that you don’t miss paying out any important bills.

4. Debt Avoidance and Debt Elimination :

Getting yourself in debt is quite easy. As and when you start spending in excess of your income, you start borrowing money whether from your friends, relatives or loans from banks etc. Or we can say when you ignore the above habit of “living within your means”, you land yourself in debts.

Debt avoidance and Debt elimination are two different matters to be dealt with. So, if you avoid debts at the first instance only, you can improve your financial situation.

Debt has to be paid back, that too with high amount of interests. So, why not avoid it before it becomes a financial burden for you.

Even if you have some debts especially the credit card debts, for any reason whatsoever, you should try to eliminate them to lead a healthy financial life.

5. Building an emergency fund :

Don’t take this just as a financial habit, but it’s the need of the hour. Anybody can face financial emergencies and if you have sufficient backup for yourself and your family, then there is nothing to worry about.

Emergency fund, is the one where the money is readily available whenever you need it. e.g. any medical emergency where you need the funds immediately.

Besides savings accounts, you can explore other investment options like fixed deposits and liquid debt mutual funds based on your goals.

Once you have an emergency fund of at least 4-6 months in place, you can plan to save and invest for your long term objectives.

6. Retirement planning :

Here comes the most important part, not only a financial habit but a crucial part of your financial portfolio. Retirement planning is one of the long term objectives. You should start planning for your retirement at a young age to reap the benefits of compounding over the years to come.Stages or Phases of Retirement Planning pic

Saving even a small amount now will eventually add up and you can enjoy its benefits post retirement. The sooner you plan for your retirement funds, greater will be the benefit that you will derive out of it.

Investing your money towards your retirement and growth goals now will definitely pay you off a big sum as compared to investing at a later stage.

What is important is to organise all the aspects of your personal finance, now whether you ‘Do it yourself (DIY) or with the help of an experienced Financial planner is upto you. Taking expert advice for building a solid financial plan can be more fruitful than experimenting things yourself.

A final note :

We all have numerous dreams and developing good financial habits, to fulfill them is not as difficult as it seems to be. A strong determination followed by systematic financial planning can help you take the right financial decisions at the right time.

It is never too late to change your financial habits for your own betterment. If you adopt these financial habits and learn to manage your money effectively, you shall definitely lead yourself towards a smoother road to financial freedom. (Read : ‘Are you on the right path to achieve your Financial Freedom?‘)

Which financial habits you already have ? Which are the ones you need to work upon ? Any other financial habit you want to include in the above list, do share with us.

About The Author : This is a guest post by Harleen Kaur, a Chartered Accountant & a Finance blogger who runs a personal finance blog @ Fintrakk.com, which aims at simplifying things in the field of Finance & Taxation for the common man.

(Kindly note that Relakhs.com is not associated with Fintrakk. This is a guest post and NOT a sponsored one. We have not received any monetary benefit for publishing this article.)

(Post published on : 15-November-2016) (Image courtesy of Stuart Miles at FreeDigitalPhotos.net)

  • Ashish Shrivastava says:

    Home Loan v/s Lumpsum

    Dear Sir,
    Which option is better between lending homa loan of 25 lac or using lumpsum ( in hand cash ) for building home.

    Also is there any option like invest 25 lac in any fund and withdrawing home loan EMI per month from fund and invested fund will also be increased. ( Excluding FD )

    Thanks
    Ashish

    • Dear Ashish,
      Could you plz elaborate on the second option ???

      • Ashish Shrivastava says:

        Dear Sir,

        I heard about some fund , in which if you invest lumpsum amount say 25 lac then monthly you can withdraw 25000 and your lumpsum will also be increased with time .

        Also please clarify which one is better in Home Loan v/s Lumpsum

        • Ashish Shrivastava says:

          Dear Sir ,

          Something similar to SWP ( systematic withdrawal plan )

          • Dear Ashish,
            If you have other high priority goals (Retirement / Kid’s education etc) and has not adequately planned or saving for these goals, suggest you to take home loan (considering the current interest rate scenario, you may get a better deal now) and invest the Corpus amount in better investment avenues as per your goals and time-frame.

          • Ashish Shrivastava says:

            Dear Sir,

            From last comment “invest the Corpus amount in better investment avenues as per your goals and time-frame”

            which option I should consider for investment also I want to withdraw loan EMI from invested fund.

            Thanks
            Ashish

          • Dear Ashish,
            My suggestion would be not to opt for SWP and pay EMI out of it. This can be a complex and risky option.
            You may pick Equity mutual funds for your long term goals.
            Kindly read :
            Best Equity funds
            How to pick right mutual fund schemes?

          • Ashish Shrivastava says:

            Dear Sir,

            If that is the case then is it okay to invest 25 L in Equity Mutual fund for 15 years

            Also is NJ india trusted provider for high amount Mutual fund purchase.

          • Dear Ashish ..You may pick one diversified equity fund, balanced fund and one mid-cap fund for our long term goals.
            Suggest you to set up STP (systematic transfer plans) instead of investing lump sum amount.
            NJ is a intermediary. You money actually gets invested in fund houses.
            You may check your investments by requesting statement from R&Tagents like CAMS to verify your investments.

  • Ashish Shrivastava says:

    Dear Sir,

    I have one more query .

    I am planning to start SIP for my niece. I have 2 niece age (8 years & 2 years ). I’ll want to generate good fund for both for the purpose of higher education or marriage.

    How should I divide 5500 money per month so that both will get good amount ( 20 lac ) when they will turn 21.

    Also which fund would be good to invest ?

    Thanks
    Ashish

  • Deepak says:

    Dear Sir,

    I have one home loan is continue & INR 15 Lacs is pending. However, I am paying INR 42K per month which is quite more than the required EMI Suggest me that I am expecting to sell my ESOPs worth INR 8 Lacs & thinking to offload the hosing loan at least by 50 % of total outstanding. Would this step be good or should I invest that money for purchasing land or other investments. ??? Which would be a viable solution.

    My monthly income is around INR 2.0 L Hope your valuable suggestions be helpful to me

  • Rishika says:

    It can take years of experience to develop good financial habits, but the benefits of being responsible with your spending are well worth any effort it takes to develop good practices. When you have your finances under control, you can keep you and your family out of debt.

  • Anu says:

    Hi Sreekanth,

    I have been following your blogs for some time now. Although I have started being more cognizant of the need to plan finances properly, still, because I know I am not an expert and because I am quite risk averse and scared of making stupid mistakes, I have not been able to make much progress.
    Unfortunately, my husband is least interested in financial planning and hence it becomes more difficult for me.
    Request you to please guide basis the below.I know its too much to ask in on post. I just have wasted too much time till now and want to start now rather than waste more time. Please advise. Would be very grateful to you.

    Need 1:
    15 lakhs Health Insurance Family Floater (for self, husband). Will buy separately for mother in law. My parents are govt. servants and sufficiently covered even post retirement.
    Query 1: Most plans I have checked (also using your blogs for guidance) have capped almost all normal surgery costs at 55000-65000. This seems very low for any good private hospital in Delhi. This is where I am stuck and unable to proceed. Please advise.
    Query 2: Since I am pregnant with my child, should I wait till he/she is born and then buy a floater with 3 of us? Or would the baby be covered under the scheme in which we both get enroled?

    Need 2:
    Retirement planning.
    I read your blogs and using the calculator, plugged in my numbers and ended up with real huge and scary figures. Ever since then I have been very worried, but have taken no action. Any advice on what could my first steps here be, would be very helpful.

    Need 3:
    Savings for child education
    I am 2 months pregnant with my first child. Please advise on what could be first steps I take to fulfil education needs.

    Need 4:
    With whatever room is left, I would definitely want to invest towards creating wealth- putting my money at work to make more money. In 2 years, we want to buy a flat of our own (worth around 1-1.2 crores)

    Details:
    Me- 31 yr old, living in Delhi- In hand income 85000 per month
    Husband- 34 yr old- In hand income- 100000 per month
    Monthly expense (all inclusive including rent, SIPs, VPF, car emi)- 95000 per month

    Current Assets- Cash in SBA- INR 8 Lakhs. A car whose current value is 4 lakhs. Ancestral property with my share worth 2 crores which we wont sell for atleast another 3 years on personal grounds.

    Current Insurance Covers:
    Self- Company provided Life Insurance (for self, husband, mother in law)- floater of 7 lakhs PLUS ICICI term plan with 50 lakhs cover
    Husband- Company provided Life Insurance (for himself, me, mother in law)- floater of 5 lakhs PLUS LIC term plan with 50 lakhs cover

    Current Investments and their value
    1. My PPF Account today’s balance- 144857. Contributing 5000 per month
    2. Contributing VPF (4000 per month) in addition to EPF. Today’s balance- 370000
    3. Husband’s PF Account balance today- 50000 (had to withdraw last accumulated account last year forcibly since the two orgs could not transfer in time)

    Mutual Fund Portfolio with value and start dates
    (many in ICICI due to investment with low knowledge)

    1. ICICI Prudential Long Term Equity Fund (Tax Saving) – Growth- current value- 15542
    Start date- 18 Aug 2015- 1000 monthly SIP
    2. ICICI Prudential Focused Bluechip Equity Fund – Growth- Current Value- 31661
    Start date- 18 Aug 2015- 2000 monthly SIP
    3. ICICI Prudential Balanced Fund – Growth- Current Value- 33205
    Start date- 18 Aug 2015- 2000 monthly SIP
    4. ICICI Prudential Value Discovery Fund – Direct Plan – Growth- Current Value- 10452
    Start date- 7 Feb 2016- 1000 monthly SIP
    5. ICICI Prudential Value Discovery Fund – Growth- Current Value- 31346
    Start date- 7 Oct 2015- 2000 monthly SIP
    6. SBI Magnum Midcap Fund (G)- Current Value- 55948
    Start date- 5 Feb 2016- 5000 monthly SIP

  • pankaj says:

    Hi , to save taxes on present income and capital gain tax on 1.5 lakh , I want to invest in mutual fund for long term.
    1. Is ELSS MF is the best option.
    2. Can you suggest best ELSS MF with high risk.
    3. Should I take moderate risk , if so then plz suggest some MF.

    Should I directly invest AMC indivuadually as I heard that if I do thourough my DMAT Ac i will be charged little higher. ?

  • Pradip says:

    Dear Srikanth, thanks for another informative article. I want to start SIP in mutual funds 10000/- per month for 15 years for wealth creation. I can take high risk. for better return. I’ve shortlisted 5 funds.
    a) BSL Frontline Equity Fund 2000/-
    b) ICICI Prudential Value Discovery Fund 2000/-
    c) Franklin India Smaller Companies Fund 2000/-
    d) DSP-BR Micro Cap Fund 2000/-
    e) BSL Tax Relief ’96 Fund 2000/-
    1. Do you recommend any change to this portfolio?
    2. Since I’m investing for long term, I’ve not included Debt funds, is this correct logic?
    3. If I increase the SIP amount to 15000/- any portfolio change is required?

    • Sreekanth Reddy says:

      Dear Pradip,
      The portfolio looks fine.
      The additional SIP amount can be invested in funds based on your time-frame and objective.
      For example – If I have to accumulate higher goal corpus amount for say long term goal (>10 years), I prefer to allocate higher amount to mid/small fund.

      • Pradip says:

        Thanks Srikanth for your reply. I’ve few more questions-
        1) Keeping one Large, Mid & Small fund enough for long term BALANCED equity portfolio?
        2) Should I remove the Multi-Cap fund (ICICI Pru Value Discovery) since I’m holding one Mid & Small Fund in portfolio?
        3) Which one you prefer in Midcap- Franklin India Smaller Co. / HDFC Midcap Opprtunities?
        4) Should I make large cap SIP 2000/- and Small Cap 3000/-, keeping total portfolio value same?
        5) Is my shrink-ed portfolio better compared to previous one? Any change you suggest in funds or amount?

        a) BSL Frontline Equity Fund = Large Cap = 3000/-
        b) HDFC Midcap Opportunities = Midcap = 3000/-
        c) DSP-BR Micro Cap Fund = Small Cap = 2000/-
        d) BSL Tax Relief ’96 Fund = ELSS = 2000/-

        • Sreekanth Reddy says:

          Dear Pradip,
          1 & 2 – If for long-term, personally I will keep multi-cap fund in my portfolio.
          3 – Mid-cap, then HDFC Mid-cap.
          4 – You may, for long-term horizon.
          5 – Kindly note that BSL fund has allocated its corpus to the extent of 49% in mid-cap stocks. So, your portfolio is very aggressive and more skewed towards mid/small cap oriented.

          • Pradip says:

            Dear Srikanth, thanks for the deep explanation.
            How can I make my Equity Portfolio balanced then?
            Should I go with my 1st portfolio choice?

            a) BSL Frontline Equity Fund 2000/-
            b) ICICI Prudential Value Discovery Fund 2000/-
            c) HDFC Midcap Opportunities Fund 2000/-
            d) DSP-BR Micro Cap Fund 2000/-
            e) BSL Tax Relief ’96 Fund 2000/-

          • Sreekanth Reddy says:

            Dear Pradip..You may consider this portfolio.

          • Pradip says:

            Dear Srikanth, thanks for the answer. Is this portfolio balanced/diversified? As my previous portfolio was heavily inclined towards Mid/Small cap.
            Any change in fund/SIP amount is suggested?

  • Pritam Parab says:

    Hi Sir ,
    I have Rs.50k . Would like to invest the same in Debt Fund instead of investing in FD .
    However ,I require the same after three month .Could you tell me whether the same will be invested of shorter period ?
    If yes , please tell which one need to selected ?

    Thanks …In Advance .

  • PRAKASH says:

    Hi Shreekanth, I have got a lumpsum of 2 Lakhs which i want to invest in mutual funds instead of fixed deposit. kindly suggest me a short term mutual fund ( Holding period shall be minimum 1 Year).Thanks in advance.

  • Manja says:

    in My opinion, the term “Saving” should be striked off. There should be just investment. A saving at home as cash or in Savings account hardly beats inflation and actually erodes off the wealth over time. People should “Invest” for emergency, Insurance, etc. From the monthly income, after all the Investment amount is taken care (which should be based on Goals) then the expenses should be arrived at. People often calculate their expenses first and then arrive at “Savings” (or Investment as I just indicated).

    • Sreekanth Reddy says:

      Dear Manja,
      Sometimes ‘savings’ are also important to give that extra balance or cushion to ones investment portfolio.
      Ex – PPF is a long-term saving oriented product.
      Agree with you that it is wise to follow :
      Income – Savings/Investments = Expenses.

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