How Middle Class Families Plan Finances Better?

India’s middle-class segment is considered to be the backbone of the economy, playing a crucial role in the nation’s growth and development. According to a report titled 'The Unprecedented Expansion of the Global Middle Class', the Indian middle-class market could “overtake the U.S. and become the second-largest middle-class market in the world” by 2020. So, who exactly are these middle-class people?

Most households that fall under this category live in residential complexes, own a private vehicle and seldom splurge on things. Investments form an extremely important aspect of their earnings. Financial planning therefore plays a key role in the lives of such individuals.

Taking into consideration the fact that people in the middle-class category earn fixed monthly income and have fluctuating expense, there is a limit to how much planning can be done. However, knowing the right measures to take can help the households manage their money better. In this article, we will look at some of the techniques and instruments that can help middle-class individuals flourish and grow their wealth.

Steps to Achieve Money Goals with Limited Income

Plan for short-term, mid-term and long-term objectives

While designing a financial plan, it is important to set in place the relevant financial objectives. Decide if they are short-term, mid-term, or long-term, and accordingly develop a timeline to accomplish them. If one is looking to buy a vehicle in 5 years or save for children's schooling, setting the right goal gives an idea about how much money needs to be set aside today.

Choose the right instrument to invest

Once the financial goals are defined, the next step is to identify which investment plan will help achieve these goals. The investment options in the market are plenty. There’s unit linked insurance plans, mutual funds, stock market, etc. Lately, the investment plan that has been in the spotlight is ULIPs. They are a type of life insurance product that provides risk cover for the

policyholder/investor along with option to park money in any number of qualified investments, like stocks, bonds and mutual funds (Tip – Look for investment plans that will allow you to park money for the long-term. This way, you won’t get tempted to break the investment any time soon, in turn allowing you meet your long-term objectives.)

Get adequate term insurance cover

In the midst of developing a financial plan, individuals need to ensure that they have adequate term insurance cover. Term insurance is low-premium, high-cover protection plans that provide financial security to the life assured’s family in the event something untoward happens to the individual. The policy pay-out will help ensure that the family members do not have to make any compromises with regards to their finances and are still able to accomplish their defined financial goals.

How Middle-Class Families Can Save Money for Investing

Now, if a household is struggling to come up with the funds to invest towards their financial goals, then it is time to take a step back and evaluate the financial plan altogether. If you’re among those who are finding it difficult to save money for investments, below are some of the measures you can take.

• Spend less, save more: It is a known fact that spending sensibly and saving regularly form the key to ensuring financial security for the future. Yet, many find it impossible to save as much as they want to. Sometimes, high expenses leave nothing for the individuals to invest. Others keep putting off savings for later date, giving priority to their immediate wants over future needs. Those who find themselves in similar boats can consider getting another job to earn money. This extra income can be used for investment reasons.

• Use credit cards only during emergencies: It is always best to stay away from racking up debt. Credit cards are a major reason why people find themselves in a debt trap. To keep this from happening, it is advisable to limit oneself to having just one credit card. Take this a step further by only utilizing it in times of emergencies. These measures can help save money in the long run since additional charges are avoided.

• Make use of bonuses and tax refunds: There's no better feeling than knowing that one is eligible for a bonus and/or a tax refund. Often times, people make the mistake of blowing up the money they’ve received on shopping, travel and other forms of entertainment. Instead, it is recommended to deposit this amount into an investment plan, like ULIP, and let it grow into a bigger amount.

The above-mentioned points are few of the techniques by which households can save money for the purpose of investments. Teaching one’s family members to treat money as a limited resource can go a long way in helping everyone inculcate financial discipline. This will also allow the household to make the right call over investment decisions.

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