In this post, I will discuss key elements that are crucial for achieving financial happiness. Regardless of our income level, there are certain aspects we should prioritize. It’s advisable to address these early on, as they tend to be more affordable when we are younger. The way we handle our earnings typically involves spending, saving, and investing. It’s important to adopt a structured approach of planning, investing, and then spending.

Plan Your Finances:
Financial planning may seem daunting, but it’s actually quite straightforward. We often overcomplicate simple tasks, leading to procrastination. Start by understanding your average monthly expenses and ensure they remain below 70% of your income. For example, if you earn 50,000 per month, aim to spend a maximum of 35,000. The remaining 30% should be invested. As your income increases, you can gradually increase these percentages. Now you have 15,000 available for investment. The topic of how and where to invest this money is subjective and depends on factors such as age and priorities. I will cover this in future posts.

Opt for Term Insurance:
Life insurance is often bundled with investment products like LIC policies, which many middle-class individuals have. While these policies encourage disciplined savings, it’s advisable to separate insurance and investments. Term insurance is akin to vehicle insurance. Just as we claim insurance when our vehicle is damaged, term insurance provides financial security in case something unfortunate happens to us. It ensures that our responsibilities, such as a home loan, children’s education, or supporting our family, can be handled even if we’re not there. In a separate post, I will delve into details such as the necessary coverage amount and duration.

Health Insurance:
Having at least one health insurance policy is essential. It can be provided through your workplace or obtained individually. Having both workplace and personal coverage is comforting, as it protects against the risk of being uninsured during employment gaps. Choose an adequate sum insured and consider getting separate policies for your parents to reduce premiums. Avoid opting for an excessively high sum assured, as it will come with high costs. You can start with a base plan and add a top-up plan to keep premiums manageable.

Maintain Detailed Records:
Create an Excel sheet containing your insurance, bank, and investment details. Share this document with your family members and a trusted individual outside your immediate family. As we progress in our financial journey, we tend to invest in multiple places, such as mutual funds or personal lending. Often, these details are not communicated effectively to our loved ones. The same goes for our insurance policies. Shockingly, there is over 82,000 crore rupees in unclaimed policies. We certainly don’t want our hard-earned money to lie dormant.

Seek Passive Income Opportunities:
While saving from our salary is important, it’s equally beneficial to explore avenues for generating additional income. It may be challenging in the early stages of your career, but always look for parallel opportunities aligned with your passions. These endeavors may not yield substantial income initially, but every extra penny counts. Ensure that these activities do not drain all your energy. Find a balance and fine-tune your approach as you gain more experience.

Regularly Review Your Investments:
Investing shouldn’t be a one-time affair. Keep track of how your investments are performing and assess when to transition between different asset classes based on market conditions. However, avoid overdoing it. Sometimes, we tend to monitor volatile assets like mutual funds, equity shares, or cryptocurrencies on a daily basis, making impulsive decisions. If you’re investing for the long term, reviewing your investments on a quarterly basis is more than sufficient.

Invest in Yourself and Your Family:
Investments should not be limited to financial assets alone. Consider investing in experiences and personal development. This could involve planning a trip for your family, pursuing a degree or certification to enhance your skills, or even making donations to those in need. While these investments may not provide immediate monetary returns, they contribute to personal growth and well-being.

I hope these steps help you gain some financial literacy, which is often overlooked in traditional education systems. If you have any doubts or need clarification, please feel free to leave a comment. Please do share this information with your friends and family.