Financial habits to adopt for financial stability


How much you make is not as important as what you do with it.

New habits are difficult to form but what is even more difficult is to get rid of the old ones.

Unlearning is as important as to learn, the old needs to make space for the new.

Financial stability cannot be achieved by not paying attention to your financial habits.

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Have an Emergency Fund

Ideally you should set aside an emergency fund equivalent to six months expenses.

This could be in a combination of liquid mutual funds and fixed deposits.

The emergency fund could be more than six months of expenses depending on other prevailing conditions but never less.

Always review your emergency fund annually, if your expenses have gone up then so should the amount in your emergency fund.


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Have a Retirement Fund

When you retire, you stop working but don’t stop living.

Your monthly expenses will continue as they were, in fact taking into account inflation, it will only grow further.

Further when you consider rising medical inflation & expenses & growing life expectancy, a retirement fund should be your primary goal when investing if not a goal you prioritize.

You are going to grow old, it is not a voluntary choice and your children are not your retirement fund.


Needs versus Wants

Understand the difference between needs and wants, they are not the same.

Needs you cannot put off like eating, wants you can like purchasing the recently launched and in vogue phone.

There are certain purchases where drawing a line between the two can be a complicated task.

For eg. Buying a car for traveling to and from work along with driving to and picking up your kids from school is a need but specifically wanting a SUV for that is a want.

Understanding the difference between your needs and wants is a good start but implementing your understanding is what eventually makes the difference.


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Budget everything

Budget everything and try staying within your means.

Making a budget would involve keeping a maximum limit on each expense and trying to stay within that limit.

This will inculcate a sense of discipline and make sure you never go astray.

Keeping a budget will help in avoiding unnecessary expenses.


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Good debt versus Bad debt

Good debt refers to any debt that enhances the quality of your life, instantly or over a period of time.

This could include an education loan or a home loan.

A home loan gives you security whereas an education loan has the potential to elevate your earnings.

Bad debt is any debt that can have a negative impact on your earnings with little to no upside.

This could mean any product, on the purchase of which its value automatically declines, like say a phone, car,etc.

Debt is relative so what is bad debt for one may be good debt for another and vice versa.


Track your Spending

Tracking your spending does not mean only having a mental calculation of your expenses.

Once in a while you need to write down your expenses since writing it down helps in the sense that it makes your expense feel real.

Note unnecessary expenses and avoidable expenses, no matter how trivial they may seem cause  the accumulation of such ‘trivial’ expenses in the long run can cause a hole in your pocket.

Pay your bills on time, wherever possible try availing discount rates on paying before due date and avoid impulsive shopping and minimize dining out.

Prioritize your needs before wants and see how your expenses take a dive. 


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Income & Disposable income

Income is what you have in hand before your expenses and Disposable income is what is left after your expenses.

Ideally a higher disposable income should be the goal and this would be dependent on various factors like how much you can save and your expenses.

Most people only focus on income when in fact a higher disposable income is what eventually counts.


Savings is not your Investment

Any savings you may have is not your investment.

Understand the difference between what constitutes savings and what constitutes investments.

Fixed & Recurring deposits, PPF, NPS, etc. are savings and not investments.

The current generation cannot afford to not invest with a high rate of inflation and a higher life expectancy rate, retiring is not cheap and there is no loan for retirement.

You cannot invest if you cannot save and saving is a habit that needs to be inculcated as soon as you start earning.

Having both savings and investments is a necessity, the allocation of which would depend on your risk profile.

If your earnings are not beating inflation by a decent margin then you will end up working for the rest of your life.


Plan your goals

We all have life goals, some are general and some specific.

If you do not plan for your goals well in advance, you end taking a loan which eats into your monthly budget and not all goals can be delayed or for that matter even cut down on.

Plan for your goals and be disciplined in the pursuit of it.

You will have to fulfill your unavoidable goals in any manner so you might as well go about it smoothly.


Avoid racking up credit card bills

Avoid racking up credit card bills to a point where not only does it affect you financially but also emotionally and mentally.

Whatever you purchase, be aware of both value and not just price for it is not necessary that a heavily discounted product adds value to your life.

Whenever confused on whether you really ‘want’ something, a simple thumb rule is to ask yourself if you can afford it twice without any emi’s.

Impulsive shopping gives you temporary pleasures but the after effects of it are more than temporary.

Small durable consumer credit card bills are acceptable since they help build up your credit score.


Annual Review

Review the progress you have made towards your goals on an annual basis, along with what you achieved and where you fell short.

If your expenses have gone up then your emergency fund should also in accordance.

Keep a track of the taxes that you may have to pay and whether you have saved enough for the same after making use of all the tax saving instruments.

Ideally your contribution towards your investments should also go up by a minimum of 10% on an annual basis.


                If you do not learn to manage your hard earned money in an efficient manner as early as possible, you will never be able to live a stress free life.

                Building new habits will take time, you will falter along the way in the initial phases but it is important you never stop being accountable to yourself.

                Get back on track, start over and be disciplined in your approach.

                Some habits you will pick up instantly while some make take months, don’t lose hope and keep in mind the bigger picture.

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Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
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