Manmohan Soni recalls his financial struggles during the pandemic. And how he used some good sense to survive the sudden financial slump.
At that time, he was working in a manufacturing company in Mumbai. His company announced a sudden salary cut for all employees. “In my case, my salary was cut to half – which wasn’t enough for me to even pay the rent,” says Soni.
Luckily for him, some savings saw him through for a few months in the city of dreams. He also started giving tuitions to supplement his income while searching for another job. “This event was a big lesson for me, and I realised the importance of savings,” he reflects.
Badly bitten once, a cautious Soni, now in Bengaluru, can teach us about buffing one’s finances and the importance of being financially sound.
Money matters can beget stress
There is no denying that one’s finances can be a common source of stress and anxiety especially to youngsters.
“Financial wellness can have a direct impact on your stress levels, sleep, and appetite as well as on your emotional health. Studies show that people who are stressed out about their finances can experience anxiety and depression as well,” says Anna Hema Sam, clinical psychologist at YourDOST, an online counselling platform.
She says that especially during the pandemic, the number of people who reached out to them was very high because of job insecurity and the overall uncertain financial scene.
Money-related stress also leads to reduced abilities in decision-making ability. The more stressed people are, the less likely they are in making good decisions on spending and saving.
- According to a 2016 research paper titled ‘A Longitudinal study of Financial Difficulties and Mental Health in a National Sample of British Undergraduate Students’, financial stress can have an impact on one’s mental health.
- People in debt have higher rates of mental health issues like depression and anxiety compared to those who are debt-free.
- Financial stress is the most common cause of depression in adults.
- A study linking financial worries and psychological distress among US adults revealed a link between mental health issues and poor financial condition.
Financial stability will allow one to provide a comfortable lifestyle to their family; and for the socially inclined it would also buffer up avenues for donating to charities or social causes.
Now is the time to save more & spend less
Highlighting the twin practices of saving and reducing unnecessary expenses as the key components of financial planning, Bengaluru-based Certified Financial Planner N Raghu Kumar says, “Financial planning is all about managing expenses by [keeping in mind] the income and a future obligation towards one’s family.”
He takes us to one of the three golden rules for wealth creation as detailed in the book The Richest Man in Babylon, which highlights paying oneself first. “When we receive our income, we usually spend most of the money and invest whatever is the residue. Whereas we should be doing the exact opposite, which includes investing first and then using the residue to take care of one’s expenses,” says Kumar, who is also the founder of FinSim, which offers financial planning solutions.
“For those who complain that their bank accounts are running dry at the end of the month, tracking one’s expenses to see where money is going helps. Always allocate money for investing first and use the residual for spending on needs and wants. This will help one in achieving their financial goals,” he says.
For financial adviser Ameet Chandan, planning and discipline are two major factors for effective savings. “Always make it a habit to save some amount based on your income and expenses and stick to that plan.” Both Chandan and Karthik Rangappa, VP – Research and Educational Services, Zerodha, add that there is no set pattern of saving and that it is very case-dependent.
“What works for one person may not work for another. It’s very important for the individual to introspect on his family situation and lifestyle and then arrive at a plan,” suggests Rangappa.
Securing the future early
Money does not have to belong only ‘in a rich man’s world’ as the Swedish group ABBA sang in its popular number Money, Money, Money. Some forethought goes a long way in making, keeping and reaping our cache.
Wanting to bolster one’s financial dimension is a far cry from aspiring to be a money mogul. It is about an individual who strives to stay secure and independent, makes the money grow, and knows to save it for future uses and emergencies, for self and for dear ones.
Rangappa strongly suggests not to wait for a perfect time to make an investment. “Start with a simple amount of Rs 500 as an investment. Irrespective of the size of the capital one has, one must think of the investment. The key is to start.”
A strong financial education from parents and other elders can orient youngsters towards putting away some money regularly and equip them to successfully manage money in their adult years.
Greater Noida-based Neha Nagar, Founder, TaxationHelp.in, which offers legal services to start-ups and established businesses, suggests that a saving mindset should begin in one’s childhood.
Youngsters learn the value of saving, spending smartly, and understanding financial freedom. Over time, these early lessons become core values that would help them to lay a solid fiscal foundation for themselves.
According to Rangappa, the starting point for investment is when one starts earning. He says, “If it is parents’ money it doesn’t really have much impact. Only when you earn money and save money is the impact significant.”
Planning for financial emergencies
Another important vertical to securing one’s finances would be to plan for sudden medical emergencies and to create a source of income post retirement. “Always opt for medical insurance and term plan insurance. It will help your family members in the event of an undesirable situation, so they can lead a normal life,” suggests Chandan.
Individuals should also reflect on their personal situation and lifestyle to come up with an emergency savings plan to tackle any unfortunate situation.
Do not rush to the bourse
Then there is the allure of quick returns and windfalls from trading in stocks. Rangappa cautions youngsters not to get into trading soon after discovering their money or the bourses. Instead, they could wait until they have built a stable portfolio. They could start with a large-cap mutual fund or an index fund.
He recommends that rather than saving, one should invest any spare cash in something that guarantees them returns in the future. “That way your money is always growing, or at least matching inflations rates instead of getting lost in the inflation process.”
Tips from Neha Nagar of TaxationHelp.in:
- Consider creating a budget to track your monthly spending and income.
- Create an emergency fund to save for unexpected expenses.
- List all monthly bills, mortgage payment, credit card bills and any loan payments. Such an exercise will help to prevent late payments and penalties which lower your credit score.
- Develop a habit of financial planning for your future. This can include goals such as buying a home, saving for college expenses and retirement.
Early bird benefits
“Most people regard financial planning as an old people’s game,” states Mohamed Risham, who owns a car showroom in Dubai. However, a rupee invested today would be worth more than a rupee invested tomorrow, so the sooner one starts investing, the greater the benefits.
