When you are in your 20s, you are undoubtedly faced with big life decisions like job change, getting married, traveling the world, taking a personal loan or buying a home. No matter what decision you take personally or professionally, only if you are financially prepared can you go through with the plan. Here are some healthy financial habits you can develop to lead a financially independent life:
Keep a check on your spending habits
Differentiate between needs and wants. You can spend money on something that you need whereas something that you want can be purchased at a later time when you have sufficient funds to spare. Entertainment and dining out fall under wants while grocery and fuel purchases fall under needs. In order to curb your spending, you can learn to cook and eat homemade meals, and opt for car pooling. Give up on smoking and drinking as they not only add to your expenses but also affect your health. Lifestyle habits like smoking and drinking increase the premium of your life insurance and health insurance policies.
Create a monthly budget
Draft a monthly budget and stick to it. Budgeting will help you keep a tab on your income and expenditure. Set aside a specific limit for your monthly expenses. Keep a check on your spending in such a way that you don't exceed the limit. If you are applying for a loan, ensure your personal loan EMI doesn't exceed 50% of your salary. It is advisable to maintain a low debt-to-income ratio in order to avoid defaulting on a payment.
Set aside an emergency fund
Putting aside money regularly for an emergency can result in significant savings over the years. The emergency fund can serve as a saving grace in your hour of need. Accidents and illness can't be predicted. However, you can be prepared for such an unfortunate eventuality. If your cashless claim is rejected, you will have to pay the medical bills out of your own pocket before making a reimbursement claim. This is when an emergency fund comes in handy. Also, if you have a lump sum amount to put aside, open a Fixed Deposit which will earn interest over the years.
Focus on building your credit
Whether it is a car loan or personal loan, with a good credit score you not only get a lower loan interest rate but also have a higher chance of loan approval. If you don't have a credit history, begin building one by applying for a credit card. Credit score is calculated based on the data collected from banks and other financial institutions. Don't exceed your credit limit and ensure to pay your credit card bills on time in order to maintain a good credit score. Another way of maintaining a good credit score is by striking a balance between unsecured and secured loans like personal loan and home loan or car loan, respectively.
Save up for your retirement
It's never too late to start saving up for your retirement. The earlier you start saving, the more funds you have to lead a comfortable retirement life. Visit a comparison website to select a suitable life insurance retirement plan to invest in. With a few clicks of your mouse, you can compare life insurance plans across top insurance providers and get an instant quote on your chosen plan.
Purchase insurance cover for life, healthcare, and vehicle
Get insured with a suitable life insurance policy and health insurance policy against any financial crisis arising from an unforeseen, unfortunate event like disability, accident or illness. If you have a car or bike, it is mandatory to have third-party liability cover as per the Motor Vehicles Act, 1988. You can compare motor insurance policies online and choose the one that best serves your needs.
Take calculated risks in investment
When it comes to investing in mutual funds or ULIPs, seek advice from a financial expert. Unit Linked Insurance Plans are a better option as the risk involved is lower than mutual funds and the guarantee of returns is higher.
Debt consolidation using personal loan
Manage your loans responsibly. If you have multiple loans, review them, and repay the high-interest loans on priority. If you have outstanding dues on multiple credit cards, get a personal loan to consolidate all the credit card debts into one single debt with a lower interest rate. Most banks provide attractive debt consolidation personal loans.
Education loan and home loan offer tax benefits as per the Income Tax Act, 1961. You can get tax deductions on premium paid towards a health insurance policy and critical illness rider. You can also get tax-free maturity benefits from life insurance policy.
Keep your financial documents in order. If you have a clear cut plan for your future, then be financially prepared to fulfill your goals. Whether you are in the early stages of your career or preparing for a promotion, your 20s is the right time to start financially preparing for a wonderful retirement life.