Financial well-being is learning how to manage your money and resources judiciously, ensuring not only present financial security but also paving the way for peace of mind that comes with freedom of choice that allows you to enjoy life, in the present and in the years to come.
A common misconception is that mental well-being, work-life balance and financial well-being are three separate things to strive towards in life, and that each can be pursued independently of the other. Not quite. Enjoying a good life with family and friends, finding happiness and emotional wellness, overall well-being and having a great work-life balance have a common denominator - financial security. It’s far easier pondering despairingly about how tough life can be, sitting in your Mercedes or maybe looking at the sunset from the 42nd floor of your sea view apartment.
Financial security is the foundation upon which a great life can be built. Poor are those, who despite being financially well-off, don’t focus on health and well-being.
Today, if Maslow was alive he would probably tweak his theory (‘Hierarchy of needs’) a bit because even to get to the base of his pyramid for physiological security (air, water, sleep, shelter, food, clothing and reproduction) we need to first set our finances in order. We need no reminder that we live in a capitalistic world.
Big dreams don’t materialise overnight. The key is to make a start.
Set financial goals
Define your goals. Always invest with purpose. Inflation will make your goals more expensive over time, compounding will help you achieve mind boggling numbers in the long run. It is critical to understand the impact of both. Your goals are based on your aspirations, your dreams and what you would like to achieve with your money. Similarly, your investment plan — the mutual fund schemes that you buy, how many fixed deposits you ought to have in your portfolio and so on — will be unique.
Also read: Twelve financial resolutions for a happy and prosperous 2024
Don’t rely on recommendations with your eyes shut
Do not allow people to sell you products without understanding your specific requirements and situation. The case of relationship managers of a private sector bank mis-selling the highly risky AT1 bonds to gullible investors, to meet their own monthly targets, is still fresh in mind. Such relationship managers of large brokerage houses and even banks are also known to hard-sell Portfolio Management Schemes (PMS) and Alternate Investment Funds (AIF) to investors. Not that PMSs and AIFs are bad. But if you do not understand how they work, you could end up disappointed.
From making your monthly balance sheet, and personalising your goals to aligning products suited to you, personalisation is key.
Household budget
Use technology to help you create your household monthly balance sheet. Clarity on your monthly budget, income and expenses is the foundation to start your journey. This allows you to live within your means and avoid high interest debt. Save first, spend later is a great philosophy from here onwards. Of course, technology will also help you invest paperless and provide the convenience of tracking your investment goals.
Don’t just focus on return; look at risk, too
Have a clear understanding of risk and return. High returns without risk and volatility are a myth or a scam. Don’t make the mistake of chasing the highest return product based on short-term performance. It’s not these past returns that create wealth but your ability to remain invested despite market volatility. Equity markets reward resilience.
Set the right expectations, and instil the correct investing temperament. Wealth creation takes time. Build resilience and allow compounding to work for you. Remember, we are our own worst enemies when it comes to investing. Don’t allow anyone to fuel your greed.
Do not try to time the market. Invest with discipline, this will give you the advantage of rupee cost averaging, reduce overall risk and ensure you meet larger goals with the help of compounding.
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