How to invest in order to achieve financial freedom?

The simplest things in life are the most difficult to find! Managing personal finance is easy. You just earn enough, spend less, save enough and invest regularly. However, these simple things are easier said than done! A recent survey by an online mutual fund platform revealed that 72% of Indians have no idea how much to save or invest to achieve financial freedom in life. 56% of the respondents in the survey agreed that they lacked financial knowledge to handle their personal finances. 

17.5% of the world’s population lives in India but almost 76% of adults are unaware of basic financial concepts, according to a global survey by Standard & Poor’s Financial Services LLC (S&P).  Less financial literacy leads to lesser financial prosperity and security. 

There are ample recommendations, advices available on personal finance, but the most effective are the simplest ones that hold the key to the secret of effectively managing personal finance  goals. Here are 10 essential things you should know about better money management this 2020.

#1 Invest before you spend

Saving and investing is one of the most difficult things to do for many. Not because they don’t earn enough, but because they may be using a different approach. Most people first spend the money they have and then think of investing what is left.  On the contrary, it’s actually important to first commit to some form of savings and investment plan – whether it’s a mutual fund SIP, investing in a fixed income instrument or ELSS. The proportion of investment you commit to can vary as per your investment horizon and risk appetite. 

#2 Limit credit card use

Every offer is tempting when you have the ease of swiping your credit card for your purchases and converting them into easy EMIs. However, credit card debt comes with high-interest rates. Do you know that the annual percentage rate (APR) of credit cards in India are as high as 46? [1] Avoid using your credit card for buying household essentials and utility bill payments. 

#3 Say a quick ‘No’ to quick profits

It’s easy to get lured by the promise of quick profits in low-priced penny stocks, shady chit funds and other financial scams. Stay away from those and protect your money. If you don’t know it, simply don’t do it! You may never realise how quickly you end up losing it all once you step into the vicious and tempting trap of quick gains.

#4 Invest for the long-term

Whether it’s equities or mutual funds, lasting wealth is created only when you have a long-term investment horizon. Invest regularly for the long-term and watch your wealth grow steadily. A long-term investment horizon allows the magic of compounding to work, helps you save taxes efficiently and generate wealth for your financial security.

#5Check your interest rates

For those who have taken multiple loans, keeping a track of your interest rates is a must! While paying off your loans, start with those with the highest interest rate first and pay the bare minimum on those with the lowest interest rate. This is popularly termed as the ‘Debt Avalanche Method’, where you start high and work your way down. 

#6Learn how to save taxes

You have to pay taxes once your annual income crosses a certain threshold. Know that saving tax on your income is as important as earning them. Learn how your income is taxed; how you can become more tax-efficient; and the best tax saving instruments that are available for you. Equity-linked savings schemes (ELSS) are tax saving mutual funds that can help you save taxes while building a sizable corpus. With Axis Direct, you can easily invest in ELSS and save up to Rs. 1.5L in taxes. You can take advantage of the dual benefits of capital appreciation and tax-savings. 

#7 Start investing early

It is simple math. When you start investing early, you not only have time on your side but you can leverage the power of compounding. For example, if you start a mutual fund SIP of Rs. 5,322 per month at the age of 25, you can build a sizable corpus of Rs. 1 crore by the time you reach 50 years; assuming that the rate of return is 12% per annum. 

#8The 50//20/30 Rule

The golden rule of budgeting, popularised by Senator Elizabeth Warren, is the 50/30/20 principle. According to this rule, you should allocate 50% of your monthly income to current necessities like food, rent and utility bills. 20% should go towards fulling your future financial goals like a comfortable retirement or buying a house or even paying off your mortgage. The remaining 30% can be used to indulge yourself, i.e. you spend it as you please, on whatever you please!

#9 Name your Beneficiaries

As the saying goes: hope for the best, prepare for the worst. Even though you may be in the prime of your life, it doesn’t hurt to stay prepared. Ensure you’ve named your dependents (be it your spouse, children or wards) as beneficiaries in your life insurance plan, your pension plan and to your property. To make things airtight, drawing up a will is always a good idea. 

These 9 essential tips and tricks are simple, practical and effective ways to help you master your personal finance management. Remember that good personal finance management is the gateway to lasting prosperity and wealth. If you want to start your investing journey with a trusted and reliable partner who understands your financial needs, get Axis Direct’s 3-in-1 Banking, Demat and Trading account and avail the benefits of investing in mutual fund schemes, ELSS, ETFs, equities, IPOs, derivatives and much more.