Financial Independence is not about higher income! Break Free from #MindManacles

Financial Independence is not about higher income! Break Free from #MindManacles | Aviva India Blog

It’s not your salary that makes you rich, it’s your spending habits.

– Charles A Jaffe

Does your financial independence actually depend on a high salary? If your answer is yes, think again. It is very easy to spend all of your hard earned money without thinking about the future. However, it is challenging to save even 5% of your income.

Financial independence is not about higher income as with a raise in salary, your spending habits also expand. Moving to a big house and purchasing a fancy car are some of the top financial moves people usually make with an increased salary. So, instead of wondering where your income went and how to save money, revise your monetary plan and identify the loopholes.

Tom Corley, a successful accountant, financial planner and author of his best-selling book, Change Your Habits, Change Your Life, explains that wealthy people have certain habits in common. He surveyed 233 wealthy individuals including many self-made millionaires and found that success no longer has to be a secret passed down among only the elite and the wealthy. It is the financial habits that create wealth or poverty or keep individuals stuck in the middle class.

In a nutshell, it is all about the self-imposed mind manacles (not your income) that prevent you living a life of a millionaire. Breaking free from this mind game is the first thing you should do to attain strong financial ground. Next you can follow some of the proven money saving tips, we have collected for you.

Categorize your saving account

Multiple bank accounts can be tricky to manage. Still, an extra account can be the rescuer you need for a better saving habit. Have a separate account, solely for the purpose of saving and investment. Don’t use a debit card for this designated account. You can even divide your income to flow into three different accounts – one for fixed expenses (EMIs), another for household expenses (rent, utility bills, household expenses) and third for savings and investment purpose. This spare account ensures that your savings are not impacted even when your expenses are higher in a particular month. Transfer a fixed percentage of your salary to this bank account. Ideally you should save a minimum 20% of your income no matter how less your salary is.

Diversify your investments

Do not put all eggs in one basket. – Warren Buffet on investment

Follow this golden rule when investing money. A sound money saving plan includes diversified outlets for investment. Distribute your money wisely in fixed deposits, SIPs, mutual funds, PPF, bonds and equity market. Don’t confuse your investments with insurance plans. Only miscellaneous sources can guarantee high returns.

Moreover, it is smart to opt for long-term investment plans that don’t allow a quick exit. A long-term saving option doesn’t allow early withdrawals. Investing first and then spending what is left of the salary is one golden rule that gives you ample financial independence.

Arm yourself with the right insurance plans

Unforeseen situations come in your life when you least expect. Unexpected hospitalization, diseases, accidents, treatment of a loved one, or loss of a family member are some conditions that come without an invitation. Such emergency cases can burn a big hole in your financial and saving plans. You need the cushions of the right insurance plans to safeguard yourself and your family against these monetary burns.

However, it doesn’t mean that you should spend a large portion of your income purchasing insurance products. Infact, pure term insurance plan are comparatively cheap. Do your research buy a life insurance plan that suits your life stage and needs. Choose the right plan wisely. 

Avoid lifestyle inflation just after an increment

Ask yourself if what you’re buying is a need or a want. There is a big difference. – Dave Ramsey

Your salary gets revised every year. With switching to a new company you even get bonus, a good raise and multiple perks. Then why do you always remain broke? It may be due to lifestyle inflation that pushes you behind in terms of monetary stability even after getting an increment. An increase in income should be handled properly. There is a big difference between your wants and needs. Small chunks of luxury or an affluent lifestyle can give you momentary pleasure, but it pilfers a significant amount of money from your savings. Sometimes, it also pushes you in unnecessary debts (EMIs and credit card bills). There is nothing wrong in treating or indulging yourself but not beyond your income.

Stock for a worry-free retirement

Save your money. You’re going to need twice as much money in your old age as you think. – Michael Caine

If you are in your 20s, 30s or even 40s, retirement might not be your priority and seems like a distant event. Thinks again – Is it so? Get rid of this mind manacle as you need to save consistently, wisely and immediately to retire worry-free. You should start saving for your retirement as soon as you get your first pay-check. With increase in income and age, stock more for your old age. You can examine your needs through a retirement calculator and align your retirement plan with your saving plans.

Most people fail to recognize that the biggest hurdles in saving money are their own minds and habits. It is all about breaking those mind manacles. Gradually, you will realize that financial independence isn’t about being rich but saving well, and that achieving it is easier than you think. 

AN AUG 06/18

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