If you have been looking to shape up your financial portfolio, then the remaining half of 2020 can be the best time for you to kickstart your journey in the right direction of portfolio reconstruction.
While 2020 has so far been one of the worst years in human memory, there are some positives too.
To cushion the negative impact of COVID-19-led financial disruptions, the UK government has come up with several stimulus packages that aim to make life and financial planning easier for its citizens. Hence, contrary to popular belief, 2020 can still be the best year for you if you know the best ways to plan your finances this year.
This article will give you the top-5 time-tested tips that can fetch you high returns, even as people around the world struggle to cope up with the loss associated with the pandemic.
The Top-5 Ways To Manage Your Finances in 2020
2020 can be the best year for those who wish to manage their finances by embracing austerity and having more control over their money. Check the top-5 things you can do right away to boost up your financial profile.
1. Plan Your Budget
Budgeting is something most of us overlook while planning our finances. The problem is especially serious with young professionals, most of who have plenty of disposable cash in their wallets but do not know where to put the extra money and even worse, how to use it.
Budgeting is a habit which takes years to master; but once it is laid out, it can be your best friend through the rest of your life. Only when you have a well-written budget can you claim control over your finances.
Any well-meaning budget has the following three components.
a. Earnings
b. Liabilities
ç. Cash Flow
Before calculating your earnings, identify which of your investments generates positive returns, including salary or income from a business. While some financial instruments give monthly interest, others may pay you every three or six months. Whatever the mode, as long as you are getting money, it will come under earnings.
Liabilities are what you have to pay every month. It may be everything that goes out from your wallet, right from paying for utilities to repaying loan EMIs. Figure out the fixed outflow first and add variable expenses, like buying a mobile phone, to it, to come to the actual figure.
Cash flow is the actual amount that gets credited to your account after deducting the liabilities. People often use a credit card for bad credit to increase their spending power when they feel that their cash flow is below par.
2. Go Digital
Under the current circumstances, putting all your money in one financial instrument is the last thing you should consider. Gone are the days when people parked all of their hard-earned money in banks and depended on the interest income to sponsor their lifestyle.
With fixed income interests hovering near their multi-year lows, you can never beat inflation by staying loyal to one investment medium. Hence, consider dividing your money among various financial instruments. Create a combination of low-risk low-returns and high-risk high-returns portfolio to reap rich dividends.
However, if there is one thing that stops people from opening too many accounts is the additional burden of maintaining records of transactions. A digital portfolio manager can come in handy for such purposes. You may upload all your investment details into the portal and can keep a tab on your portfolio whenever you feel like.
You may also upload scanned copies of important documents on the portal, which can give you access to the files if anything ever goes wrong.
3. Set Up an Emergency Corpus
Most people often overlook the need for keeping a corpus that can take care of themselves and their families during the event of an emergency or a sudden job loss.
If you belong to that category of people who are still contemplating about setting up an emergency corpus, then gear up, and create a fund as early as you can.
As you create a fund, consider keeping the money in an account that will fetch you high returns. Ideally, you should keep about six months’ income in the emergency fund. As interest gets added to the initial investment, your emergency corpus will keep on growing, thereby increasing your peace of mind.
4. Insure Yourself and Your Family
Insurance has never been a top priority for people in the UK. But, COVID-19 has changed that. If last three months’ insurance data is any indication, then the insurance industry is headed for windfall gains.
What was a luxury earlier must be in your reality-list now, if you wish to stay in the peak of your health, forever. Three types of insurance must be there on your to-do list.
- Life Insurance – Insure your and your family’s life with a cover that is enough to sustain all for five years in the least. Look at the budget-list you created earlier to figure out the total amount your family might need to sustain itself and apply for insurance that covers the costs.
- Health Insurance – Health can be your prime cause of concern as you grow old. Apply for health insurance that can cover the rising costs of healthcare.
- Property Insurance – Extreme incidents like floods, fire, earthquake can wreak havoc to your property. It is better to secure your property by taking insurance.
5. Use Credit Appropriately
Credit, when used properly, can help you beat even the toughest of problems. Apply for the wrong one, and you may regret the decision throughout your life.
You may apply for credit in the form of an overdraft, credit card, or loan. Loans may be of two types – secured and unsecured.
An example of a secured loan is a mortgage loan, where you need to mortgage your property with the lender for availing the loan.
An example of an unsecured loan is a personal loan, where the lender looks at your credit score and financial profile before granting you a loan.
Depending on your financial profile and repayment capability, you should decide the credit type that suits you the most. Generally, a credit card is the easiest among all loan options.
People often make the mistake of withdrawing money from their bank account to fund high-value purchases. A prudent saver would always apply for a loan to pay for short-term requirements and keep the money in a savings account for future use.
Conclusion
Managing your finances can be the best thing to do in 2020. Revisit your portfolio and take the necessary steps to always stay on top of your finances.
What did we learn?
