Change is the only constant. And when you get the opportunity to change, never lose it. You might be looking for a job change to turn your passion into your career. Or you might be looking for a shift in your career to grow in your professional life. However, changing your job is not a cakewalk because you will have responsibilities to take care of. And one of the most crucial aspects of career transition is your finances. Your financial stability might be in danger if you do not plan your money well before the change.
Knowing money management is essential and will help you handle your finances without hassle. Hence, please read this article further as we will give you a deeper understanding of money management and financial literacy and how you can make a strategic move towards managing your money when you have a career change.
Before going further, let us first understand what money management and financial literacy are.
What is Money Management?
Money management tracks expenses, budgets, invests and evaluates tax liabilities. It is also known as investment management. The primary purpose of money management is to add value to and increase the standard of living and assets. It is a strategic technique to make money and produce high-interest output value for the money spent.
Basic Principles of Money Management
Managing how you spend your hard-earned money and making your money work for you is the central aspect of money management. Here are a few basic principles for managing your finances in day-to-day life.
Organize Your Money
Plan and prioritize where you want to spend your money first. List out all the dues and loan repayments that must be paid on time and keep some amount for it as soon as you get your salary. You can also use budgeting softwares to make your planning easy.
Track Your Spendings
Track where your money goes. See where you spend more money unnecessarily. If you have the habit of impulse buying, make small changes to cut down on those distractions. And always spend less than what you earn.
Make Your Money Work
Start learning about investment and invest a certain percentage of your income. Investing is one of the best ways to make your money work for you by giving a high return on investment.
Understand The Risk factor
Before investing your money, you must be aware of the risks involved. The more you take risks, the more the returns are known as Risk-Return Trade-Off. Investments like stocks and bonds have a high rate of return but also involve an increased risk of losing your principal amount. However, assets like certificates of deposit and money market have lower rates of return with a low risk of losing your principal amount.
Educate yourself about finance continuously and keep learning to improve your financial literacy. Having a good knowledge of financial management gives you the confidence to handle any unexpected situation financially.
Plan For The Unexpected
Plan and save a certain amount of money beforehand for future emergencies. It is also essential to plan for unexpected circumstances by taking life and health insurance. You can use this saved money for anything when you require funds immediately.
What are the 4 Pillars of Financial Literacy?
Financial literacy is basic economic concepts such as budgeting, saving, asset creation, etc. Having financial literacy will help you gain the confidence to handle any financial circumstances that may occur without any forewarning. There are four pillars or cornerstones of financial literacy. They are:
Budget to Create Savings
The first step in financial literacy is to learn how to budget. Budgeting helps you plan, organize, and control money’s outflow. It helps you in saving money for the future. It also helps in setting financial goals. To create an efficient budget, you must make a separate tracker for daily, weekly, and monthly expenses. Track where you spend your money and increase your savings.
Reduce Your Debts And Increase Your Assets
Manage your debts carefully, so you don’t fall into a debt burden. Make your payments on time and clear all your outstanding debts. Also, monitor your Debt-to-Income Ratio (DTR) and maintain it to less than or equal to 50%. Clearing your debts helps in increasing your assets with your savings. Some financial assets include savings, real estate, investments, retirement funds, and precious possessions.
Building a Good Credit Score
A credit score represents how you manage your past and current credits and indicates your creditworthiness. It also shows your overall financial health. If you score above 750, you are considered a low-risk and highly credible borrower. Hence, the lender will be ready to offer you loans at lower interest rates. Though having good scores are beneficial, you have to frequently check your score using Buddy Score and get a credit report instantly to keep track of your credit health. The credit report includes personal information, public records, credit accounts, and the number of inquiries made. You must review your message regularly to identify and rectify potential errors that negatively affect your score. Hence, credit score plays a crucial role when you apply for a personal loan using Buddy Loan to fulfill your sudden financial needs. And to improve your score, you must repay your dues on time, review your report regularly, and avoid multiple hard inquiries.
Also Read: Types of Credit Scores and Its Importance in India
Consumer Protection and Financial Institutions
You can get maximum benefits when you have a savings or checking account from banks and credit unions. But, before you invest your money, you must be aware of your consumer protection tools beforehand. Doing so will also help protect yourself against financial scams, identity theft, predatory lending, etc.
Now that we have a deeper understanding of money management and financial literacy, let us go further with tips to manage your money when you have a career transition.
Strategic Approach To Manage Your Money During A Career Shift
Here are some tips to make your career transition smooth without disrupting your financial management.
Keep Your Expectations Real
When going through career transitions, you will have a lot of expectations about your new career or job. It is best to avoid fantasizing about your new career and have realistic expectations. Know that you might be paid less than in your previous job, or things might not go according to your expectations. So, to avoid any career shock or disappointment, do detailed research on your new career or job and evaluate your potential.
Have A Track Of Your Expenses
During your transition period, it is essential to track your spending to avoid a financial crisis. Plan and budget by having a separate tracker for daily, weekly, and monthly expenses. If you spend too much, make minor adjustments to reduce those expenses. Therefore, spend money only if it is necessary and avoid impulse shopping.
Prepare Yourself To Handle Months Without Salary
When you plan to change your career, you might have a gap of a few months before taking up a new opportunity. As a result, you need to plan well to handle this situation smoothly. If you are facing any shortage of funds, you can also take advantage of personal loans. You can take a personal loan without collateral and minimum documents using Buddy Loan.
Save For Emergencies
It can be financially stressful when you are changing your career. So, before changing your job or career, save money for emergencies for three to four months. You can also start transferring a small amount of your income to another savings account, eventually growing into a significant savings amount.
Clear Your Debts
Before leaving your current job, make sure you repay your existing debts as soon as possible and clear all your debts. You can regularly clear your debts through EMI payments and reduce your debt burden when changing your job or career. This way, you can focus on your career change without worrying about pending debts.
Do not make an impulse decision when you want to change your career and take things slowly. While in your current job, use your monthly income to take training and certification courses and have a good idea about your new job to gain the upper hand. You can take these courses from reputed websites on weekends. This way, your career transition will be seamless.
Get A Health Insurance
Be prepared for medical emergencies and protect yourself by taking life or health insurance. It will act as a source of funds when you have any such troubles without the need to spend from your savings.
Plan According To Your New Salary
After you have successfully changed your career, you have to now make adjustments according to your new job role and salary. You have to make small changes to your daily expenses, such as cutting off pick-up and drop-off services and using public transportation till you become financially stable in your new job.
Also Read: How to Get a Personal Loan: A Complete Guide on Eligibility and Documents
With strategic planning and budgeting, you can have a smooth transition in your career without disrupting your financial stability. Moreover, having sound knowledge of money management and financial literacy will help you boost your self-confidence to handle any economic circumstances.
However, if you fail to save sufficient funds for emergencies, you can always use personal loans to cover such expenses. With digital and quick processes, you can get this loan using Buddy Loan within 24 to 48 hours, making it easily accessible for anyone in need. Also, a good credit score will be an added advantage to quickly getting personal loans at low-interest rates. You must maintain a score above 750 and check it frequently to know your credit history and credibility.
Should I start saving for my retirement now itself?
Yes, it is best to start saving for retirement now. The sooner you start, the more you will keep making your life easier after retirement.
What are the main aspects of money management?
There are three main pillars for money management, namely:
- Needs vs. Wants: Know the difference between your needs and wants. Needs are essential things such as food, water, and shelter. And wants are the things you desire but are not crucial such as a phone, vehicle, etc. Hence, prioritize what is necessary and spend accordingly.
- Budgeting: Plan your monthly expenses and track where you spend your money. Make small changes in your budget where you are spending unnecessarily and keep some amount for savings.
- Savings: When you plan your monthly expenses, keep some amount separately for savings. This amount will be helpful when you need instant funds.
Is it good to take a Personal Loan?
Yes, taking a personal loan will help you handle any financial emergencies. You can take this loan without any collateral. You have to submit minimum documentation. With an online process, you will get instant loan approval. Once the verification is completed, your loan amount will be disbursed within 24 to 48 hours.
Who can take a Personal Loan?
If you are a salaried employee or self-employed, you can take a personal loan. You must be between the ages of 21 to 60 with a minimum income of INR 21,000 per month.
Should I submit any documents when applying for personal loans?
Yes, you must submit minimum documents for your KYC and income verification such as Aadhaar Card, PAN Card, passport, and voter ID. For income proof, you need to submit your bank statement for the last three to six months, Income Tax Returns, and employee certificate to show your work experience.
What is the minimum credit score for personal loan eligibility?
It would be best if you had a credit score above 750 to qualify for the eligibility criteria.
When is the best time to take a personal loan?
You can take a personal loan for various reasons such as medical emergencies, wedding plans, business growth, travel expenses, home renovation, etc.
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