Personal
investing and expense tracking can be a real hassle. Here’s a system that
simplifies the process by only focussing on the priorities in the form of
rules. As long as you’ve got the three rules right, you no longer need to worry
about your finances. The system is designed to take care of itself.
Rule No 1. Create an emergency liquid cash option
If you
suddenly lose your job or there’s a medical emergency in the family, you need a
backup system. Rule of thumb should be 3-6 months of your average monthly
lifestyle expense. Keep it in a savings account.
Rule No. 2 Use A Debit Card Instead Of A Credit Card.
A credit
card gives you a false sense of empowerment by making you spend what you may
not be able to repay. Remember, a credit card makes expense tracking very
complicated because you’ll need to pay back what you spent along with interest
at some point of time. There’s no such problem when you use a debit card
provided you do not abuse the overdraft limit.
Bonus: These
days you accumulate loyalty points when you use debit cards which entitles you
to discounts at your favourite shopping haunts.
Rule No. 3. Do Not Confuse Insurance With Investment
I cannot
stress this hard enough. Term insurance, Health Insurance and ULIP’s are not
investments. They’re guarantees when something goes wrong with you. It may not
be a priority when you’re young.
An
investment on the other hand gives you a guaranteed source of income when you
need at a later date be it when you lose your job or want to start your
business. I only recommend two type of investments –
debt
instruments like fixed deposits or mutual funds that invest in company debt
(and also give you tax benefits)
Investing in
the stock market using an Index ETF’s (exchange traded fund) because this way
all you need to track is the main indices. Learn
more about how an Index ETF works.
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