7 financial wellness habits you can build to retire at 40

Each of us has a different relationship with money and our way of managing our economic lives, impacting our financial wellness. In simple words, financial wellness stands for a healthy financial life. It means you have enough money to meet your present and future needs. You have enough cash to pay off your debts, pay for your children’s college education, meet any emergency obligations, and cover your expenses post-retirement. But how does one achieve financial wellness? Let us look at some habits that can free you from money worries.

1. Get into the habit of savings

Let’s face it. Most of us don’t have much control over how much we earn. However, it’s very much within our control to manage our earnings. As a thumb rule, many experts recommend saving at least 20% of monthly income. Sadly, Indian millennials are doing poorly in this area. According to a 2019 survey, nearly 53% of millennials were saving only 0 to 10% of their monthly income. Among people with an income of more than 75,000 a month, only a third were saving over 20% of their incomes. By improving their savings, millennials can start taking small steps towards financial wellness.

2. Developing reliable sources of income

A reliable source of income is a key requirement for financial wellness. COVID-19 has shown many people that there’s no such thing as a secure job. Investing in skills and education is a kind of insurance against job losses. Interestingly, this also has an impact on the savings ratio. The survey mentioned above also shows that millennials with higher technical degrees are able to save more than others. Millennials should also develop soft skills such as negotiating a higher salary or asking for a raise. They should also try and engage in side hustles to reduce their dependence on a single income source.

3. Plan to become debt-free

Debt is one of the biggest barriers to achieving financial wellness. According to a YouGov-Mint Millennial survey, millennials are more likely to take loans than other age groups. More than 11% of millennials have loans of over Rs. 10 lacs. Also, those with higher incomes have higher levels of debt. Becoming debt-free should be a constant goal for every millennial. Be it mortgages, student loans, personal loans, or credit card debt, all of these involve interest, which can eat up the savings. Depending on your debt, you should create a plan and milestones to achieve freedom from debt.

4. Maintain financial records

Maintaining a record of your finances makes it easy to track your expenses. The use of digital banking and payments apps can be helpful in this regard. Be it net banking or the use of latest apps like Jupiter, Fold, PayZello and Niyo all of these provide you with a detailed record of expenses. The records help you keep an eye on what percentage of your income goes towards different categories like living expenses, education, leisure, etc. This way, you can set cost-saving goals for each category and monitor expenses over time.

5. Financial literacy

Over the years, India has seen a rapid improvement in financial inclusion. By financial inclusion, we mean access to useful and affordable financial products and services. Today, millennials have many options to invest their money. They can invest in stocks, bonds, mutual funds, an equity-linked savings scheme, government schemes such as public provident fund (PPF,) and so on. Millennials should develop financial literacy to make the most of these options. They should understand the different financial products, the potential returns, and the risks associated with each asset class. You don’t have to become a financial guru, but it's good to know the basics of portfolio management.

6. Planning for retirement

It is advisable to set a target amount for retirement. Once you have set your target, you can determine the amount to be invested under different asset classes. For example, stock markets offer a higher return over the longer-term, but they also have higher risks. One of the rules of investing is subtracting your age from 100 and using the resulting answer to determine your portfolio’s percentage to be invested in stocks. For example, if you are 30, you can afford to have 70% of your portfolio in the stock markets, including related investments like mutual funds.

7. Plan for major expenses and major purchases

Big expenses and purchases can put a huge strain on financial wellness. You can manage them by deferring them until they are necessary. Also, avoid impulse spending, especially when making large purchases. Invest time in researching different options and take the advice of experts before any large expenses.

To conclude, financial wellness should not be a goal only for those with a lot of money. 

Everyone can achieve financial wellness irrespective of their age and income, provided they develop the right saving and spending habits. 

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