By: Dr. Sanjay Kumar Agarwal, Sr. Associate Editor, ICN Group
(Inculcate Good Financial Habits)
(In the past article, we knew about the importance of becoming a lifelong learner. Today, we will know about inculcating good financial habits.)
Inculcate good financial habits
We all know that fulfillment of our necessities & desires depends upon money. Earning varies from person to person. Some earn more, some less. Whatever may be your level of income, you will find that your ‘desires’ are increased to meet your income or even exceed the income. You must learn to differentiate between necessary expenses and avoidable expenses on desires, because each of us has more desires than our earnings can gratify.
Only earning the money is not enough; sufficient saving for the future and proper investment of saved money is also necessary.
A sound financial plan must focus on the following 5 essentials:-
- Continuous efforts to increase the earnings.
- Investing a portion of income (at least 10% of post tax income) for future.
- Giving 10% of the income as tithe.
- Keeping 5% of the income for upgrading self by continuous learning.
- Limiting the expenses within remaining 75% income by proper budgeting.
Inculcate following financial habits from childhood and if you have not yet started some of these habits, you may choose to start practicing NOW, without any further delay:-
- Control your expenditure. Learn to differentiate between desire and necessity.
- Save at least 10% of your post tax income for future.
- Reinvest the interest for getting good growth. Don’t utilize the interest for spending for gratification of desires.
- While investing, take sufficient care to protect the principle. Don’t risk security of your principle in anticipation of higher returns.
- Increase your value to the society by continuously upgrading your skills, so that your earnings are increased.
- While investing, listen only to the master manager, not to a novice, who is not competent to guide you.
- Before giving personal loan to anybody, look for these 3 things:-a)What are the assets of the person taking loan,b)What is the earning capacity and repayment capacity of the person,c)Whether he is empty handed and is taking loan for expenditure. If it is so, there is full possibility of your loan becoming bad debt.
- Start early to take benefit of power of compounding.
- While investing, look for tax free returns.
- Be disciplined in investments.
- While calculating your future needs, make adjustments for inflations.
- Buy medical insurance for post-retirement period.
- Understand the power of financial leverage.
- Learn to differentiate between an asset and liability.
- Repay high cost loans at the earliest – avoid credit cards interest due to delayed payments. Read carefully the terms & conditions of credit cards.
- Learn to postpone consumption. Postpone by a day/ week/ month/ year, depending upon the urge and the amount involved. The more you learn the art of deferring, the stronger your mind and body will become.
- Tell your kids the benefits of deferring.
- While investing, understand your risk profile and time horizon.
- Remember, your profit can be increased by purchasing at lower rates. Wait for the right opportunities.
- Plan your cash flows and funds flows.
- Never put all your eggs in one basket – diversify among the fixed income, liquidity, mutual funds, real estate, stocks, bullion.
Mistakes people make in financial planning
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- Procrastination towards learning about money – no understanding of the concepts of Assets vs. Liabilities and good or bad financial leverages, etc.
- Spending more than income.
- They don’t know the cost of postponing investment.
- Taking debt without thinking – High cost of credit.
- Thinking credit card’s money as free of cost; forgetting that bankers are not fools.
- Not saving/ investing in a planned manner.
- Being too conservative.
- Being too aggressive.
- Spending too much on bad habits like drinking/ gambling/ speculation.
- They don’t have patience to wait.
- They try to time the market, whether it is the case of stock markets or bullion or commodities.
If we understand some of these financial habits and inculcate these habits in self, our children will observe us and unconsciously inculcate these habits, which will be beneficial for our next generations.
I wish you all good luck for a sound financial planning.
(In the next article, we will discuss about importance of learning new skills. I believe that you are enjoying the journey towards the future of your dreams with me. If yes, please stay tuned every Tuesday, Thursday & Saturday. Happy G.O.P.T.A.)
Dr. Sanjay Kumar Agarwal, Creator & copyright holder of the concept G.O.P.T.A.© is an Author, Certified NLP Lifestyle Master Practitioner, Corporate Trainer & Motivational Speaker and recipient of Honorary Doctorate of Excellence (Management) by prestigious Young Scientist University, California, USA. He is Founder of ‘Read, Learn & Earn Movement’ and is popularly known among his fans & followers across the globe as ‘Time and Goal Guru’.
