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5 Pillars of Financial Discipline to Lead a Healthy Financial Life


Time to read: 4 mins | January 26, 2017

All of us want to be successful. Although individuals define success in a different way, we are talking about wealth. Who doesn’t want Rs 10 Crore or more retirement corpus , or driven in a Jaguar or Mercedes after retirement? We aspire to live a comfortable life and strive hard to offer the best to our family.

Most individuals believe that investing is all about timing the market. You would find countless proponents of this theory over the internet and in the media; but we believe otherwise. In fact, it is financial discipline that will help you achieve your long term financial goals.

At a time, when individuals believe in immediate returns and delayed gratification seems out of context, financial discipline seldom finds any followers. We have been privy to individuals trying to pressure colleagues to throw a lavish party or buy a fancy car or gadget, etc. in order to “fit in the social circle”.

But, if you are an individual who’s not born with a silver spoon and want to challenge the status quo, imbibe “financial discipline”. It may sound boring and at times dull, but it is a well-tested formula to move up the ladder.

In today’s article we share across steps to help you work on your financial discipline on essential parameters:

  • Budgeting: Putting down various sources of income and expenses seems daunting, time consuming and tedious; but with the advent of web based software and mobile applications, budgeting has taken a whole new dimension. Graphs, pie charts and ratios further help in pin pointing the problem area. Budgeting is the first step towards securing financial discipline and helps in allocating a sizeable portion of one’s income towards long term financial goals.
  • Insurance: Insurance is vital as you’re planning for various life goals. Most individuals mistake insurance for investments trying to justify their purchase by the “guaranteed returns and bonuses”. However, the objective of insurance is not investing and earning a return on it; on the contrary it is indemnifying the risk to life, health or anything else such as your home, vehicle, etc. in case of an untoward incident. While purchasing a life insurance policy make sure you are covering yourself optimally with the right policy term in mind. Use our HLV calculator to calculate the optimal amount of insurance you need and make sure to compare the features and premiums before signing the dotted line. Go a step further and add a reminder in your e-calendar to avoid defaulting on the premium payment date.
  • Invest Regularly: We have penned many articles highlighting the importance of investing regularly. But, in order to do so, make sure you have written down all your financial goals with their current cost and the investment horizon you have to achieve them. You may take a help of a financial planner to ascertain your current financial health and guide you while investing. An action plan with the right asset allocation mix would help you in achieving the financial goals—short term, medium term, as well as long term financial goals. Wherever possible start a Systematic Investment Plan (SIP) to fund your medium and long term financial goals (over 5 years) focusing on equity mutual fund schemes. Make sure to maintain an adequate bank balance to avoid skipping a SIP and link it to a financial goal. This simple step would make sure you invest religiously without arbitrarily stopping mid-way to cash in on the returns that the mutual fund schemes have delivered. You can even use portfolio trackers offered by host of portals.
  • Credit Card: The biggest problem for most millennials today is to imbibe the importance of delayed gratification. High pay cheques and easy credit (credit card) have fuelled the urge to fulfil all of life’s demands, turning a blind eye towards affordability. This attitude is sure to sink the ship. Credit cards should be used only in case of an emergency. Don’t sign up for more than 2 credit cards to avoid impacting your CIBIL score . Make sure to pay the credit card dues on time and avoid extra interest or late payment fees. You can even pay more than what you owe each month to pay off your balance quickly and save on interest. However, if you can only make the minimum monthly repayment, switch to a card with a low interest rate, and repay more when you can.
  • Tax Filing: It is a little over a month (July 31) before the deadline to file your tax returns expires. Most individuals postpone this exercise for the last moment, without accounting for unforeseen delays, and giving their chartered accountants sufficient time to file returns on time. Make sure you start with accumulating the necessary documents from today to avoid frantically running around to file your returns. Keep a deadline (say July 15) to submit all the necessary documents to the accountant. This gives him buffer time to reach you in case of any query. Filing taxes is not only your constitutional responsibility but also moral duty. It can help you avail a loan (almost all lenders request for tax returns for immediate 3-5 assessment years before sanctioning a loan) whenever need be.

By following these 5 tips, you’ll be well on your way to lead a healthy financial life! The idea is to stay focused! Keep working towards maximizing your full potential and keep improving your financial health. It may seem tough in the beginning, but eventually it will be worth it.

NOTE WORTHY

Invest, by making sure you have written down all your financial goals with their current cost and the investment horizon you have to achieve them.

 

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