How to be financially stable.
HOW TO BECOME FINANCIALLY STABLE
Financial stability of an individual hinges on two factors.
- 1. Your sources of income and
- 2. The quantum of expenditure.
Obviously the more income that you can generate the more stable you are financially. But that is easier said than done. More so in uncertain times such as these with recession knocking at the door, and job security being non-existent.
WORK FOR YOURSELF
Let us tackle the income factor first. With new job prospects becoming more and more difficult what do we do to attain financial stability? The answer is in investing in you. But how? Let's not forget that recession a state of the economy when mostof its economic activities slow down. People may not have the kind money for the vacation they had last year, but people continue to eat, educate themselves and children, go to the hospital for treatment, or repair the leaking faucet in the bathroom. So people continue to spend for food, education, health or maintenance, even when there is a recession. If you therefore know how to cook, teach or repair you are having the prospects of augmenting your income. The more you are able to improve your skill in such things; the better is the chance of changing your avocation to a full fledged activity. So invest in yourself to be on your own.
LET YOUR MONEY WORK FOR YOU
‘If I had that much money, I don't have to have ask questions on financial stability.'? Your answer is indeed pertinent. Let's not forget that many a mickle makes the muckle. If you can set aside at least 15-20% of your earnings you will end up making a neat pile, over a period of time. If you want evidence just consider this example. If the Red Indian who had sold Manhattan in 1626 for $24 had invested it at 6 percent per annum compounded semi-annually, by 1959 he would have been worth $ 9500 million. This incidentally is called Terminal value. With rising cost of living this may seem far fetched. But is it really so?
CONTROL YOUR EXPENSES
Not all your expenses are beyond your control. There are of course expenses which are unavoidable. The rent that you pay, expenses for food, health care etc. But some expenses are optional, or can be toned down. In fact you can create two lists. One contains expenses which are avoidable, another which can be toned down. Was it really necessary to have purchased the designer garment for the party you had last month? This is an avoidable expense. Of course it all depends on what you consider as important. In other words you should have a priority list. Most important things first, the least important things last. This incidentally will change from time to time, so you must review it periodically. You will be surprised by the amount of money you can save. But then this is what big corporations do too.
Whatever surplus money that you have don't keep it idle. Keep only that much needed to meet contingencies. The rest you should invest wisely. But the big question is where? In a bank, mutual fund, stocks and shares, bonds, gold or real estate? Here again it has to be on the basis of your needs and capability.
Talking about needs, it all depends on the stage of the family life cycle. If you are young and single, you can afford to take risks. You may dabble with stocks and shares (remember in a recession you may get shares cheap). But if you are into your sixties, don't ever do that. It would be better to park your funds in low return but safe investments. Speaking about this you should remember the following:
- Bank deposits are safe but carry low interests and require minimum knowledge and expertise on financial issues
- Mutual funds are riskier but are more paying but require awareness of different schemes available
- Equity shares are the most risky but can yield maximum dividend, depending of course on the company. The knowledge you need is substantial.
- Bonds and debentures are safe but carry lower rate of return. Knowledge level required is limited to the different schemes
- Gold is a good liquid investment, but comparatively of lesser yield.
- Real estate is good as a long term investment but involves fluctuating fortunes and a heavy investment
INSURE YOURSELF AND YOUR ASSETS
In uncertain times such as these, insurance is a must for financial security and stability. A critical illness can eat into your savings, or a short circuit may set your dreams and assets on fire. For a few dollars paid as premium you can ensure your financial stability
BE CAREFUL ABOUT THE FOLLOWING:
- Excepting for the odd fling to feel the thrill of adrenalin flowing in your veins, don't gamble often. It's true some have hit the jackpot but in the long run you are the loser.
- Invest in stock market only for medium to long term gains. But don't try to speculate, you may end up wiping out your savings.
- Use your credit card prudently
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