Ways to maintain financial hygiene in 2021
Getting a better understanding of earning, spending, and investing will help you manage your finances and minimise risk in the new normal.
Financial awareness, ethics, and responsibility are usually overlooked during the formative years of one’s education. To now make up for that and progress further on your own financial awareness, we refer to three important steps. Getting a better understanding of earning, spending, and investing goes hand in hand with good financial decisions.
First, it’s always prudent to take stock of where you are currently. Look at all your earnings from the company you work in, as well as from other sources. See if your job is secure, if you would like to look for a change, or choose something else as a career.
Second, the pandemic-induced physical and social restrictions have catalyzed various economic repercussions globally. It might have resulted in a substantial cut in a consumer’s spending prowess. The arrival of vaccines is seeding the ideas of revenge spending and revenge tourism in people’s minds. How quickly can they get out and do something, buy something, travel anywhere!
But in such a climate, though it is essential for people to treat themselves and splurge a bit, we recommend being on guard and cautiously maintaining expenditure. After all, your savings are nothing but your potential blueprint for further investment and expansion.
Third, chances are you are not spending too much, and general expenses have been low in the last one year, probably because of varied reasons like living with family; not eating out; not spending on shopping, movies, restaurants, etc. It’s a good idea to now figure out what to do with the money you have inadvertently saved.
We see the stock market has been doing extraordinarily well. If you are a conservative risk taker in investing, there are other asset classes that might interest you, like real estate, which might eventually do well.
If you are a high flyer in terms of risk appetite but have been sitting on the sidelines, you can choose to learn something about stock market investing and grow your money there, after keeping some aside as a nest egg.
Here are some more best practices for financial management and risk neutralization in the new normal:
This is the most basic and significant aspect of financial hygiene. Planning a budget may sound like an additional step and tedious to some. But listing all expenses can help you understand your spending patterns and draw up a forecasting a budget for, say, the next month that is more accurate for your lifestyle and needs. This goes a long way in having an impact on your overall financial health.
A planned budget can help you figure out what you can buy and how much you can save. You can also understand the flow of your expenses and make realistic spending and buying targets. This is the first step towards a planned and secure financial future.
Cut down on expenditure
Once you plan a budget, you can trace your expenditures and cut down on those that you can and feel like doing so. What most people don’t realize is that most of the spending can be significantly reduced even by making a few small lifestyle changes.
We inadvertently end up spending on things that are less important and which can be reduced or avoided completely. Although this requires a little discipline, it goes a long way.
Pay your debts
If you have any credit card bills piling up and debts, you should take the necessary measures to repay those as soon as you can. Accumulating debt or not paying back on time can have consequences on your credit score.
Paying the bare minimum to the credit card company every month is all right if you are in a dire financial crunch in a particular month, but know that this doesn’t work in the long run. Because this is what the credit card company wants you to do, as they can then charge you very high rates of interest on the money that is yet to be paid.
A planned budget can help you get rid of your cumulative debt. A sound idea is to trim your credit card debt using any funds you have. A low credit score will also affect your loan potential; if you are in debt, the chances of getting a loan are really low.
Use debt relief programmes cautiously
If your credit card debt has already spiralled out of control, you can consider using debt relief programmes, which include debt settlement firms and consumer credit counselling services. These services help you by negotiating debt settlement terms, so you don’t have to pay as much as you owe.
They also help you plan debt management and provide budget advice to manage your finances. This entails you choosing not to pay your creditors, thus effectively harming your credit scores. It is advisable to use these programmes safely to ensure that your credit score remains good.
Monitor your credit score
If you have a low credit score, you don’t qualify for low-interest loans. Keeping your credit score high is essential for good financial hygiene. Therefore, you should monitor all your credit cards and keep the score high by paying instalments on time and cutting down on unnecessary expenditure. You can also check your credit score for free using any of the online available apps today on different credit bureaus; this will help you monitor your credit score.
Financial scams have become common nowadays and even educated people fall victim to them. Please don’t blame yourself, as most people are unaware of all the terms and conditions that fall under financial security. The best way to avoid them is by educating yourself about who is regulated by government bodies and who have all licences in place.
Customers need to be able to tell the difference between regulated lenders and people who might be frauds. The Reserve Bank of India has released the list of companies that are regulated to lend. With some fintech players that might not have registered as a non-banking financial company offering financial services, please read all terms and conditions carefully before using their platforms.
A proper know-your-customer (KYC) process, income proofs are a must for all regulated lenders and hence, making sure that is done is a safe point on your checklist as a consumer.
Financial hygiene is essential for survival. Most people are unaware that basic financial practices are the key to a secure future. Your savings will help you in times of crises. Hence, it is important to understand that no income is disposable, all your money is hard earned, and you should take good care of it. Only the capital that is saved can be utilized for further expansion and investment purposes. Managing your expenses and spending wisely can help you build a better, more sustainable future.
Edited by Lena Saha
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)