7 Proven Ways to Boost Your Financial Confidence

To give you the background of the story, I met Mousami last Diwali, a year back, when she got promoted to Team Leader. While it was a very happy and proud moment for her and her family, she looked worried. After the party was over, I asked her if something was wrong and if I could help her with anything. After a lot of hesitation, she finally spoke. Mousami, who was doing well in her personal and professional life, was struggling with her finances. This was a shock to me because she was earning quite well and living a great lifestyle. After speaking with her for quite some time, I realised that she was splurging all her income on things that she might not even need; she had accumulated huge credit card debts, was paying personal loan EMIs, had no life insurance or health insurance cover, and had no savings whatsoever!

A couple of years back, Mousami was getting Rs 65,000 in hand salary per month after all the deductions. She wanted to invest in the equity market but had no sufficient savings. Hence, she availed of a personal loan of Rs 2,00,000 and put the entire money in risky instruments like futures and options. Unfortunately, she lost the entire amount and to cover that loss, she borrowed another 3,00,000 and lost most of it. After this series of incidents, she decided to avoid investing in equities. However, her habit of splurging did not change. Fast forward to last Diwali, Mousami was earning Rs 75,000 per month, out of which Rs 55,000 were going towards different credit card and personal loan EMIs. Undoubtedly, the remaining salary was not sufficient to meet her ends.

While it was challenging to put her finances together, Mousami was ready to give her 100% to make it happen. I realised that the main reason she was splurging and staying away from investments was a lack of financial confidence that arose from her past experience and financial illiteracy. If an achiever like her can struggle with finances, then I believe there could be many more individuals like her who need to boost their financial confidence and financial literacy. If you, too, feel lost when thinking about money, remember that you are not alone. In this article, I am elucidating 7 ways that can help you boost your financial confidence so that you have the required knowledge and confidence to trust your ability to manage your money efficiently.

1. Educate Yourself about Finances:

Financial literacy is one's level of understanding of financial matters that helps one make informed decisions about personal finance. For someone who does not have a finance background or lacks financial literacy, it can be difficult to understand the risk associated with the new age financial products, such as SIPs, mutual funds, stocks, etc. Hence, to understand the risk and return associated with these products, a minimum level of financial literacy is required. Financially literate individuals can evaluate these financial products' risks and returns and choose the best ones that suit their requirements. To be financially literate and improve your financial knowledge, you can start by reading financial information through newspapers, magazines, websites, etc. It will enhance your financial knowledge, help you understand financial concepts, and keep up with the latest financial news. Apart from reading, you can listen to financial podcasts, use financial management tools like SIP calculators, EMI calculators, etc., which are easily available on the internet, enrol for financial literacy courses, and connect with financial experts via social media.

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2. Have the Courage:

You might think that you do not have sufficient financial knowledge or a huge debt, but you have to have the courage to face your financial fears and try something new to improve your financial situation. You might not have handled money efficiently in the past, but you have to start somewhere without knowing everything about it. To improve your financial situation, you must believe that you are improving your financial knowledge and skills and getting better at handling money. The internet is flooded with information about investments, banking, insurance, loans, and more. You might feel overwhelmed or want to learn everything at once. But it is okay not to have all the answers. It makes sense to focus on the basics at the initial stage and seek help whenever required. Having courage means believing in your abilities and knowing when to seek help.

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3. Create a Budget and Stick to It:

Knowing your income, expenses, and total debt due is crucial to achieving financial confidence. Make a list of your unpaid loans and credit card dues to know your total debt. Budgeting is the process of creating a balanced formula on how to make optimal use of your hard-earned money. Simply put, it is an itemised summary of the anticipated income and expenses for a given period, say a month. It will help keep your expenses in check and keep you out of debt. Although plenty of free budgeting software and apps are available online, you could just start with a pen and paper or an MS-Excel sheet to get the hang of the exercise. You should make a budget based on your income and expenses. If you have variable income, it is advisable to review and adjust your budget every month, apart from the main yearly budget.

4. Try to Get Debt-free Sooner:

If you want to achieve certain goals and take advantage of tax benefits, you have to avail of certain loans. For example, a home loan and an education loan are essential loans. These loans are generally considered 'good loans' because they actually help you in managing your financial requirements. However, availing of personal loans and excessive use of credit cards and credit apps are considered 'bad loans' as they can create a debt burden that you might struggle to pay. It is advisable that you should not exceed your total EMIs by 50% of your monthly income, as it could be a sign that you are falling into a debt trap. Although no fixed ratio can tell if you are under a debt trap, many experts say that you are in a debt trap if your total EMIs exceed 70% of your monthly income. Hence, it is advisable to repay the high-cost loans as soon as possible by opting for pre-payment and foreclosure. However, before opting for pre-payment and foreclosure, you should consider the charges pertaining to it. Click here to know different ways to repay your debt. But if it is not possible to pre-pay or foreclose your loans, it is advisable to repay the instalments on time so that you do not accumulate debt with late payment charges and high-interest rates. Furthermore, while trying to get debt-free, you should avoid taking any further loans. Bear in mind that availing of a loan to invest in risky financial instruments can leave you with nothing in hand.

5. Keep Contingency Funds And Buy Insurance:

As you know, life is uncertain, and emergencies such as the loss of a job, hospitalisation of a family member, loss of assets, etc., can occur at any time. Ideally, a contingency fund is nothing but six months of monthly living expenses saved. This includes everything from household expenses to EMI payments or any other expenses you may incur during a regular month. Therefore, an intelligent approach would be to put away a portion of one's savings to counter these exigencies if and when they arise.

Similarly, emergency medical expenses or the unfortunate demise of the earning member can disturb the family finances. Therefore, it is important to buy adequate health insurance and life insurance coverage.

Knowing that your loved ones are financially secure even in your absence and having emergency funds aside will help you increase your financial confidence.

6. Start Your Investment Journey:

If you haven't started your investment journey yet, today is a great day. There are a plethora of investment options you can choose from depending on your risk appetite, investment objectives, and investment horizon. While equity investment can offer inflation-adjusted returns and help you create wealth in the long term, bear in mind that it carries high risk. Whereas debt investment is considered safer than equity-related investment, but it might not have the potential to generate inflation-beating returns. Hence, it is advisable to start investing while keeping in mind your financial goals, such as retirement, a child's education, buying a house, etc. Starting small investments and seeing them grow has proven to be the best financial confidence booster for many.

7. Review Your Investments Periodically:

A regular review of your investments increases the possibility of fulfilling goals. This helps you to incorporate personal or economic changes, if any. It also helps keep a check on whether these investments will help you in achieving the targeted goals. For example, if you have invested in equities, then it would be prudent to check the current standing from time to time. It could be possible that a stock or equity mutual fund may be underperforming. Or in the case of an equity mutual fund scheme, there could be a change in its investment objective or style, which no longer meets your investment purpose-knowing that you are taking charge of your finances and successfully managing them will further grow your financial confidence.

Following these tips has helped Mousami boost her financial confidence. She gifted me a box of chocolates as a token of appreciation because, in a span of one year, she has gained adequate financial knowledge and is able to manage her finances efficiently. While she is still paying some old EMIs, she has managed to cut down her credit spendings, started a few SIPs and Recurring Deposits, building a contingency fund, and secured herself and her family with sufficient life insurance and health insurance. If my cousin, who was on the verge of falling into a debt trap, can achieve financial confidence and put her finances together, so can you. Follow the given tips and, if necessary, seek help from the experts.

Best wishes!

Warm Regards,
Ketki Jadhav
Content Writer