Almost everything in life tends to have rules. If you’re looking to stay physically fit, there are rules to follow. For instance, you need to follow and stick to the right kind of diet for your body type and know how much and when to exercise. Similarly, specific rules can enable you to become financially fit and free when it comes to money.
Let’s look at the top seven rules of money that can help create a winning strategy to get and stay financially fit.
- Know why you want to invest. In the investing world, no two investors are alike. There are several patterns of investing. But broadly speaking, investor categories include:
- Active investors
- Automatic or hands-off investors
- Low-maintenance or passive investors
Understanding the category you fall in can help you know how to put your money to work in a way that suits your investment profile. When investing, you also need to get to know your ability to deal with risk. For instance, if you’re careful, you may be extra sensitive in dealing with losses. Or perhaps, you may have a higher tolerance for risk if you are a spontaneous investor. Since investing is a long-term endeavour, patience is key to a successful investment strategy. Another important element is consistency. Regularly investing for the long run can ensure you have a nice nest egg for your future.
- Set SMART goals. Categorize your dreams into short, medium and long-term. Employ the SMART methodology to help you refine your plans further. SMART stands for
- Specific — set fixed goals
- Measurable — assess your investments regularly
- Assignable — be personally accountable for your investments
- Realistic — be sure of what you want to do and do only that
- Timeline — establish an investment
- Look into your expenses. Very few people understand how much they need to spend within their income levels. There is a thin fine line between fixed costs and lifestyle creep that most people do not realize where their money goes. Hence, it can be a good habit to sit down and evaluate your expenses. Look into your income to understand your spending habits and know where your money is being allocated. This practice can help you keep your net worth in the safe zone.
- Establish your financial position. An excellent place to begin to get where you want to go is to know where you stand financially. Once you get a hold of your current financial position, you can optimize it with time. If you are unable to view your financial life and evaluate how your money can work for you, you may find becoming financially fit a challenge.
- Get to know the difference between risk and returns. What does risk mean? It is simply the probability that your investments could lose money. It does not have a direct effect on your returns. If you’re looking for high returns, there could be increased risks involved. Safe and traditional investments such as fixed deposits carry low risk. But their returns may hardly beat inflation. If you’re looking to create wealth for the long run and be financially fit, you may want to invest in equities. To balance risk and returns, find out the comfort level you are willing to assume on losses in your portfolio.
- Ensure you stick to your budget. The key to creating wealth is to spend less than you earn. This is one of the most important financial concepts you need to understand and live by. If you are unable to live on less than you earn, it is possible that you may not get ahead or be financially fit in the future. To spend less than you earn:
- Look into your financial habits
- Make a budget and use it as a guide to controlling your expenses
- Look for ways to cut back on costs and save more.
- Invest in yourself for a better future. Investing in oneself can provide exceptional returns on investments in a wide range of ways. For instance, learning a new skill or studying father can enhance your career prospects and help you earn more. It can boost your confidence and aid you in pursuing your dreams. It can open new doors for new opportunities. All these and more can help you build a satisfying and balanced life. Similarly, when looking to invest in yourself, you may want to:
- Start a SIP for your retirement in top mutual funds
- Save for emergencies
- Diversify and grow your savings
- Get adequate medical insurance and life coverage
- Invest in your career through future education
- Sharpen your skills as job markets and companies evolve
- Expand your network
- Maintain a healthy work-life balance
The above-mentioned financial fitness tips can give you a blueprint of your future financial security.
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