This blog is a guide by which you can learn how you can build your Financial Security with normal regular earnings. We are going to know 6 main steps and every aspect of financial security with topics that include
1. What is Financial Security?
2. Why do you need financial security?
3. Is this possible with normal earnings?
4. How to start building Financial Security? – Step by step guide
5. How to know the present status of your money, investments & assets.
6. How to check your present expenses towards necessities
7. How to make a Plan to build your Financial Security
8. How to check the present status of your Financial Security
9. How to calculate monthly saving target to achieve Financial Security before targeted age.
10. and how a non-accounting background person can do without doing any calculations.
Let’s start with…..
What is a Financial Security?
A regular lifelong monthly income to sustain your necessities is your financial security.
To achieve this financial security, people are doing jobs or businesses so they will get regular monthly income. This income remains until you work. If you do not have job or work then your income stops. So this active income is not your real financial security.
Financial Security means…
“A regular lifelong monthly income which in enough to sustain your basic necessities is your financial security and this monthly income you should get without doing any active work”.
So building your monthly income source is very necessary which you should get without doing any work. If you take the right path & guidance then this effortless income you can create with your normal earnings while doing your job/business or active work.
This effortless monthly income you will get apart from your active income and this will be like your Financial Security which will increase over course of time.
Your saved money & investments can create such income which takes care of your monthly necessities. It will be like your monthly pension which you can start building at the age when you start earning. If you take this seriously and work for a longer period then you can able to achieve with normal earnings.
Why do you need Financial Security?
Living a stress-free and happy life is very necessary for humans. The present environment is making life more complex and stressful due to which our happiness is at risk.
Now it is up to us, till how long we want to live such a stressful life, especially for the money. Our most of the time is going just to earn money for sustainability and money for good living.
This everyday struggle for these has become part of our life and continues till retirement age 58 or 60. Even after retirement age, it is continuing. This must be stopped well before age 45 so after age 45, life can be lived with ease and life can be enjoyed while doing active work.
Another main reason is that in any distressed time no government is going to help you and your relative can provide very limited help. So only you are the person who can protect you and your family for any distress time.
So to address both, you need to create Financial Security.
Is this possible with normal earnings?
In India, especially middle-class people have accepted this struggling life cycle. Those who want to come out from this cycle, are focusing on making money either by speculation like the share market or doing something like business or earning by other means.
These all efforts are good but people are spending this earned money to upgrade their lifestyle, purchase luxury goods, expensive holidays and such kind of expenses. Even after earning, the struggle to earn money continues.
So those who have normal earnings and also those who are focusing for making money, if they can take control of their money and put their money to work then they can create Financial Security over course of time.
How to start building Financial Security? – Step by step guide
Now the question is, from where you should start building financial Security. Age no bar. The best scenario is that you should start working on financial security from the age when you start earning. It may vary from age 16 to 28. If you are late too, you can build your financial security with rigorous earnings, savings and investing.
You need to work on 5 main things
- Growth in your active income should be regular.
- Save & Invest money as much you can do comfortably.
- Know your saved money correctly
- Plan your goals to achieve Financial Security
- Monitor the status of financial security till achievement.
To work on your financial Security you need to follow 6 steps
Step-1 : Check present status of your money like total corpus available as on today and how much income per month your present investments are generating.
Step-2 : Check your present expenses towards necessities.
Step-3 : Make a Plan to build your Financial Security.
Step-4 : Check the present status of your Financial Security
Step-5 : Monthly saving target to achieve Financial Security before targeted age
Step-6 : Monitor your Financial Security till achievement
Know every step in detail
For any non-accounting background person, the calculation of many things is difficult. In that situation what you should do?
- If you can able to calculate these all you can choose Option-1 (By Self)
- If you are not able to calculate then choose Option-2 ( By Pre-designed Excel Tool).
Pre-designed Excel sheet will calculate every thing by just feeding all the required details.
Now for every step, we will see how we can do with both the options.
Step -1 – Check present status of your money (for calculating your present Financial Security status).
Oprion-1 (By self)
- To check that, calculate how much money you have and how much you have invested.
- This may be in the form of cash, FDs, paper investments, share market, bonds, retirement accumulated money like PF/gratuity, gold, real estate, loan given, investment in startups or any other place where you kept & invested your money.
- Once you calculate that, you will get the amount of the corpus you have as of today.
- Now check you current value of your investments wherever you have invested.
- This will be your present financial net worth.
- Now calculate how much income per month your individual investments are generating.
- Now add all and calculate how much income per month your all investments are generating.
- Now you got monthly income from your all investments. This income is like your second income or can say effortless income apart from your active income.
- This monthly income act like your “Financial Security”.
- Presently it may be less.
Option-2 ( By Pre-designed Excel Tool)
- You will get all the above said working just by feeding all your money & investment details in a pre-designed Excel “Investment Tracker”.
- It is offline, hence completely safe. The records will be available to you only.
- This will also help you to track your single money, investment and assets for a longer period of 25-30 years.
Step-2 – Check your present expenses towards necessities.
While calculating your present expenses towards necessities, you must remember that these tentative monthly expenses are for your very essential necessities which are essentially required to run your family’s basic expenses.
Option-1 (By Self)
- Calculate and note down present monthly expenses towards your below necessities like…
- House rent (where you are residing).
- Maintenance charge which you are paying to society for common area.
- Monthly installment/ EMI towards loan (If you have your own house on Loan)
- Take cost zero ( In case of owning debt free house)
- Take maintenance/up keeping cost per month (In case of own house).
- Monthly expenses towards grocery, vegetables/ fruits, milk, cooking gas.
- Monthly expenses for utility bill for landline/ mobile / internet.
- Monthly electricity bill amount (where you are residing).
- Monthly water bill amount (where you are residing).
- Yearly municipal tax/ property tax on any such tax towards your residential property where you are residing and divide into 12 so you will get the monthly expenses towards such all taxes.
- Expenses towards yearly school fee, yearly transportation fee, uniform, books & extracurricular school activities for each child. If you do total of it and divide it by 12 then you will get monthly expenses towards education for all your kids.
- Monthly expense for clothing for you, your spouse, kids or dependent parents.
- Monthly expenses for daily travel for you, your spouse, kids & dependent parents.
- Monthly expenses for health Insurance, life insurance, property insurance (bike/car).
- Monthly expenses for medical (consultation fee/ medicines/ tests).
- Add any other monthly expenses towards necessities which is essential.
- After adding all, you will get present monthly expenses for necessities.
Option-2 ( By Pre-designed Excel Tool)
- You can fill all such details in pre-designed Excel sheet “Necessity Expenses” which you can get in “Financial Security Planner & Tracker” Excel tool.
- Once you feed all the details, it will auto-calculate monthly expenses for necessities.
Step-3 – Make a Plan to build your Financial Security.
Now you plan what should be the goal to achieve your financial Security
To achieve anything, you need to set the goal so you can achieve your goal in time. Similarly, in the case of financial security, you need to set the targets by which you can achieve Financial Security well before age 45.
This is one of the ways by which you can achieve Financial Security at the right age with normal earnings. You need to set 4 goals and achieve them one by one.
1st Goal – Save an amount equal to 6 months of monthly expenses for necessities.
2nd Goal – Your invested money should generate a monthly income which should equal to your present monthly expenses for necessities.
3rd Goal – Your invested money should generate a monthly income which should equal to your present monthly salary.
4th Goal – Your invested money should generate a monthly income equal to the money you need every month to live life comfortably.
By these 4 goals, you can achieve complete financial security. Even after achieving 2nd goal, almost you will be in a comfortable position and achieved basic financial security.
To achieve this, you need to be firm that in any condition you don’t loose hope and you will keep chasing all these 4 goals while living your regular life. It is time taking process and you need to be very patience.
It is also important you should enjoy life and build a debt-free home parallally.
Step-4 – Check the present status of your Financial Security.
After completing steps 1 &2, now you are aware of your present net worth, present monthly income from all the investments and present monthly expenses for necessities.
Now you check the present status of your Financial Security.
Option-1 (By Self)
- Now you calculate, at the present time what is the amount required for Goal-1, Goal-2, Goal-3 and Goal-4.
- After getting the amounts you can check, presently what goal you have achieved and further which goal you have to chase.
- During the course of time, your earnings and expenses towards necessities will change so every year you need to review and make little corrections in your goal amounts.
- Also every year your corpus amount, income from investments and monthly salary/monthly income will change which you need to update.
Option-2 ( By Pre-designed Excel Tool)
- After feeding few details in “Financial Security Planner” sheet and it will auto calculate the amount required for Goal-1,2,3&4 and present status of your financial security.
- Few details like Income from investments, total corpus amount you have and how much monthly income required to live life comfortably.
- Whenever you update these details you will get the current status of goals automatically.
Step-5 – Calculate monthly saving target to achieve Financial Security before targeted age
To achieve your goal well before the age of 45, you need to plan monthly saving and investing targets.
Now you need to calculate what monthly saving target you should keep, every year how much to increase your saving target, till which age you want to achieve & in which year and at what average interest rate you should consider to invest.
This you can calculate by incremental recurring deposit calculator which should calculate what monthly saving target you should keep, till which age can achieve, in which year and at what average interest rate you should consider to invest.
Option-1 (By Self)
- You can search incremental recurring deposit calculator on the internet and calculate.
Option-2 ( By Pre-designed Excel Tool)
- You can calculate this by pre-designed excel file “Financial “Security Planner” in which you will get the sheet “Investment Planner”.
- This is an incremental recurring deposit calculator.
- You will get what amount will be available form 1st year to 30th year by just feeding monthly saving target, rate of interest and increment in monthly saving every year. You can put your age so you will get in which year and what age you can achieve your goal.
Step-6 – How to monitor and achieve Financial Security
Option-1 (By Self) and Option-2 ( By Pre-designed Excel Tool)
- Whenever you make any investments, you can update your financial Security Status and status of goals.
- During course of time your necessity expenses will change which you need to update regularly.
- Same way your active income, monthly income from investments, corpus amount will change during course of time which you need to update regularly.
- Monitor your Financial Security regularly/ monthly so you can get updated on the same.
- In Option-1 (By Self), every time yo have to calculate all the thing to get updated
- In Option-2 (By Pre-designed Excel Tool) by just feeding the latest inputs, you will get updated.
Things you must follow to achieve Financial Security
- To achieve financial security, your focus should be on your regular active income.
- Try to increase as much your active income so you can save & invest more to achieve financial security before targeted age.
- Do some investment every month it may be Rs 500/-. It will built habit in you to save money for Financial Security
- Balance out your investments between Secured investments, Semi-Secured Investment and Risk Investment.
- Secured investments are your real Financial Security.
- Many times you feel that you are not able to save money but don’t loose hope and whenever you get money try to save as much to recover missed targets.
- While doing investments, make sure that it should generate cash flow.
- Build assets which can multiply your investments which can be realized in later age.
Explore our Financial Security Tools “Planner & Tracker” and Investment Tracker”
You can book a session with me on zoom to understand more about Financial Security & Tools
Your main priority is to achieve and intact your financial security status lifelong. Review the status of you Financial Security every month or while making any significant investment till you achieve full financial security. This will create ease in your life.
If you are having Pre-designed Excel tool, then every time you don’t need to calculate. By just feeding the latest details you will get an update on your Financial Security status.
