“Money can’t buy happiness, but for everything else, there’s Mastercard.” It’s a tagline from a very popular advert that showed people celebrating special occasions and being happy. While people have different opinions on the same, but I feel that if you’re able to manage your money well, you can be happy. Unfortunately, we learn such money lessons very late in life, probably a few years after we start working. And by the time you understand what you’re doing wrong, it’s too late.
I’ve been an advocate of better financial literacy in schools for kids. Teach them more about money. Various financial instruments, how they work, pros and cons etc. Most of us get our money lessons from our parents. While they aren’t wrong, their ways of managing money might not be the best way in the current scenario.
I started working about 8 years ago and over the years I feel I’ve got a slightly better understanding of money and how to manage it. While I’m not an expert at it, I feel that since we’re starting the new year, I thought to share some money lessons based on my experiences. This is aimed at absolute beginners, so if you just got your first salary or want to know how to manage it better, read on.
Money Lessons I’ve Learnt
Learn about Money
I’ve always been a firm believer in financial literacy. Though most of us start interacting with currency notes quite early in life, how much do we actually know about money and currency? How back in the day it was about giving away cattle in return for grains as part of a barter system to more modern tools like cryptocurrency.
I feel that if you know the history of how and why money was required, the introduction of currency & financial systems, you will have a better overall understanding of money that will help you take better decisions.
Create a Budget
After having understood the basics of money, a key money lesson is to create a budget. Understand from where you make money – the various streams of income, the areas you spend your money in and the amount of money you save. There are many budgeting calculators available that can help you plan your budget & list down the expenses and understand how to save more.
When you know the areas where you spend, it’ll help you further shortlist them based on your needs vs wants. After you create a budget go ahead and plan how you can save more, invest more and grow more.
Understand Financial Instruments
For most parents in India, the safest investment option was bank fixed deposits. You basically put some amount of money in the bank for a certain duration and in return, you get a fixed interest rate on it. While these returns fluctuate based on larger macroeconomic situations, there are many other types of financial instruments that one must know about.
From knowing about different types of bank accounts – savings, and current; to equity and debt along with stocks and mutual funds. The better you understand these instruments, the better you’ll be able to manage your money.
Understanding the various financial instruments means it’s time to plunge. Based on your risk appetite, you can identify various options and start investing in them. The key, however, is to start investing early. The moment you earn your first income, make sure to set aside a small sum and start investing. While many people feel that investing requires a lot of money, it’s incorrect. You can in fact start investing by as low as ₹500 in a mutual fund via SIP.
While money is the key to investment, how long you stay invested is even more critical. The longer the duration, the better the returns. So if you’ve not yet started investing, it’s never too late to start!
Buying a Health Insurance
A classic beginner mistake that one makes is not having health insurance. Most youngsters feel that they’re young and health insurance is only meant for older people. But you don’t know, a medical emergency can come at any time. Not only can it affect your health, but make a huge dent in your finances as well.
My mantra is, the moment you start investing money, get health insurance for yourself. The earlier you buy, the lower the premium you have to pay. That way you not only save in the premium but also secure your health. If you are new to health insurance, please read my post on health insurance for beginners.
Use Credit Cards
You might have read blog posts or received pieces of advice from people around you that credit cards are bad. It gets you into a debt trap. While it’s true that it can get you into a debt trap, if you’re sincere and punctual in making credit card payments, there’s nothing better than them. Use your credit cards to make payments and earn reward points. Many credit cards provide you with free access to airport lounges, movie tickets, golf sessions and even flight tickets and hotel stay.
So ideally any payments you make or any purchases, all you need to do is use your credit card for it. Instead of cash, use your credit card to save more and earn points for discounted stays and travel. For instance, my AMEX MRCC Credit Card gives me a lot of bonus reward points forth the purchases I make. And I can redeem these to buy free flight tickets and hotel stays.
Got Some Money Lessons To Share?
Ever since I started earning, I’ve made it a point to understand money better. I spend time reading about money, financial instruments and related concepts and try to apply them. The money lessons that I’ve shared in this blog post are based on my experience. I’m sure many of you might have a few of them to add to this list. So share your money mantra in the comments below, tweet to me at @Atulmaharaj, DM on Instagram or Get In Touch.