Are you managing your money wisely? Learn simple strategies to secure your financial future | Blog by Rohan Biswas | Phoenix
Last year, in 2023, my father faced a financial setback that shook our family, as he is the sole earning member. While he was recovering, I had saved some money in August with plans to buy my dream mountain bike. Learning to cycle with my friends Mayukh and Mohul had been a thrilling experience, and I thought the bike (worth ₹5,000) would cheer me up during those tough times. So, I bought it. And it was a mistake.
After riding it for just two days, I abandoned it and returned to walking. That’s when I realized my mistake—the bike was an emotional purchase, a desire, not a need.
This experience taught me a valuable lesson: I needed to manage my finances better and focus on meaningful goals. I wanted to grow. I needed to improve myself, chase a dream, and learn more. Being a knowledge-hungry person, I decided to put my curiosity to good use. I started tracking my expenses, managing my money, and diving deeper into learning about investments.
Though I had been learning about investing and the stock market since 2021, I lacked practical experience. So, after saving a bit more and gaining confidence, I began my investing journey on 12th December, 2023. Since then, I’ve been a disciplined investor, carefully managing my expenses and investments.
This blog is my way of sharing what I’ve learned over the past year.
Please note, I’m not an expert—I’m still learning and will continue to learn in the years ahead. My aim is to share my experiences and insights, not to provide financial advice.
Why Does Money Management Matter?
To understand the importance of managing money, we first need to understand the role of inflation in our lives. Inflation is the rise in the price of goods and services over time, which degrades the purchasing power of money.
For instance, something which you can buy today for ₹100 might cost ₹110 a year from now due to inflation. This means the same ₹100 will have less purchasing power in the future. Let's take the example of Basmati rice:- if 1 kg costs ₹100 today and increases to ₹110 next year, the inflation rate for rice would be 10%.
On average, India’s annual inflation rate remains around 7%, which is higher than the interest rates offered by savings accounts (around 3-4%) and fixed deposits (around 6-7%). While FDs are a safe way to protect your money, they won't be a good option if you want to grow your wealth.
Source: Google
The following chart presents data for October 2024, sourced from Google.
Overcoming Inflation & Growing Wealth.
We are now aware of the harmful effects of inflation on our lives, and we also know that simply saving money isn't enough. To beat inflation, you need to make your money work for you. Managing money might seem daunting at first, but it becomes much simpler when broken down into small, actionable steps. Here's how you can start:-
1. Budgeting.
Budgeting is the foundational step towards financial management. Without having a clear picture of where your money goes, it is impossible to plan for the future. This step is the first as well as the most difficult step to consider.
Let's break it down:
→ Track your expenses:- You first need to keep a record of your monthly expenditure. Track every rupee you are spending. Do not use any app or digital notepad. Use a pen and paper, write down all your expenses throughout the day and repeat it for a month. You'll get some clarity.
→ Separate Needs from Wants:- Once you know your spending patterns, prioritize those items (food, utilities, rent, transport, etc) which you truly need. Cut all the other unnecessary expenses.
→ Create a Budget:- After you have tracked all your expenses and prioritized needs over your wants, you need to manage your money well. The 50-30-20 rule is an ideal budgeting rule you can follow. This rule requires us to divide our expenses in three parts:-
a) 50% of your monthly income should be used for Needs, i.e. essentials like rent, food, transportation, etc. - things that you cannot live without. Please do not include your desires/non-essential items here.
b) You can spend 30% of your monthly income on your wants or non-essential items like, dining out, movies, shopping, etc. This ensures that you enjoy your life while staying disciplined. Try not to exceed this limit.
c) Invest the rest! Set aside at least 20% of your income (whenever you receive your salary) for investments, emergency fund, savings, etc. This will help you in your future endeavours.
Tip: Once you receive your salary, allocate money for your needs, set aside up to 30% for wants, and invest the rest immediately.
2. Build an Emergency Fund.
An emergency fund is your safety net. It ensures your safety during unexpected situations like medical emergencies, jobloss, etc. Majority of the middle class in India is just one hospital bill away from getting bankrupt. This is why having an emergency fund helps you to cope up with those situations. You don't have to save a lot monthly to build an emergency fund. Start with ₹500 or ₹1000 monthly and keep it liquid. Open another savings account for this which you won't use unless it's a true emergency. It would be best if you have dual account facility (savings cum FD) which would give you FD like interest. Focus on reaching one year of living expenses (basic needs only) in this fund.
3. Avoid Debt.
A debt trap can ruin your life by reducing your ability to save and invest. In extreme cases, you might even struggle to make ends meet. Clear all your debts faster, especially those with higher interest rates. Avoid taking new debts, just be sure whether it will truly help you or further trap you in a chain of repayments. Once you are debt-free, your mind will be free of any inconveniences and you would be able to save and invest. Living within your means is the simplest way to avoid falling into the debt trap.
4. Start Investing.
This might seem overwhelming, but don’t overthink it.
Let’s break it down to make it simple:
a) Know Your Risks: Investing (for the long term) helps grow your money and beat inflation. To begin your journey, you first need to understand your risk tolerance. If you’re in your 20s, you can generally afford to take more risks compared to someone in their 40s.
b) Choose a Strategy: Start with safe and low-cost options like index funds. For those in their 20s, you can further study the market, research thoroughly, and gain knowledge to explore other options like stocks, gold, or foreign exchange. However, I’d strongly recommend avoiding trading. Focus on long-term investing if you want to witness the power of compounding.
c) Diversify Your Portfolio: Don’t put all your money in one place. Spread your investments across equities, bonds, mutual funds, gold, real estate, etc. A good and relatively safer way to invest in the stock market is to invest simultaneously in one large-cap, one mid-cap, and one small-cap index fund. This approach is widely recommended by financial influencers, and I follow it too. Just consider your age and risk tolerance before diversifying. Remember: large caps generally come with low risks, mid-caps with medium risks, and small caps with high risks. Three index funds are enough for a balanced portfolio—one large-cap, one mid-cap, and one small-cap.
d) Stay Consistent: Don’t try to time the market—just start investing and stay consistent. Avoid investing for just a few months or 2–3 years. Instead, invest monthly and aim for a longer period, like 5–10 years or more.
Managing your money is not about making drastic changes overnight. It's about taking small, consistent steps toward financial discipline. My journey taught me that mistakes are valuable lessons, and the earlier you start, the better. I’m glad I took that first step toward financial discipline. It’s not easy, but it’s worth it.
Remember that it is okay to start small. Track your expenses, save a little, and invest what you can. With time, patience, and discipline, you will surely witness the power of compounding. So, take that first step today—because the sooner you begin, the closer you will be to securing your financial freedom.
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Thanks a lot for reading it till here. I hope this blog was helpful and brings you some motivation to start investing and manage your money wisely!
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