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Proper allocation of a limited resource is the most crucial aspect if you want to get the most out of it, and especially when the allocation has to be done to multiple things. In the case of allocating your finances, there are always so many options that you can use, but not all of them will serve your goal. It creates conflict as to how much you can allocate to which area. If you want to spend it for family, then you have to earn more which sacrifices your time spent with them, and it creates conflict caused by stress as you miss being around with them, but you have to work to earn more. Another catch here is, there’s a limit to how much you can work as well.
Spending disproportionately on your children and savings gives constant financial stress, but there’s no denying the fact that giving your children the best you can is of utmost priority. However, in this drive, it is also essential to keep in mind how the present actions can affect the upcoming future. You also do not want to be in a financially difficult situation, especially when children are growing up.
Disproportionate Financial Allocation
Using EPF money for the wedding, spending on comforts and a good lifestyle to keep yourself motivated for work, low savings ratio, using the annual surplus for vacation or reinvesting in business are some of the actions which allocate finance to one goal while starving the other ones.
Lack of diversification in assets is another element that you can find in your finances if there is conflicting usage of money. In the absence of strategy, temples get flooded with millions across the country where Gods are asked to protect the business and finances, this reflects the primary approach used by many people when it comes to their finances.
Asset building needs to be strategic and should be backed with priorities of today and tomorrow. To manage your return and risk, you need tools, and proper asset allocation along with diversification gives you those necessary tools. Some key steps that you need to take for this are:
- First thing first, your assets need to be diverse and also easily accessible. Too much of your financial resources stacked at one area, whether it is business, kids or property will only lead to more difficult of situations. Thus, you need to diversify your assets in those investments which can be used as and when you require.
- As time changes, so do, goals, and priorities. Be open to rearrange your financial assets so that it can be in sync with the new goals and priorities. Like a big apartment in the center of the city was a great idea when children were growing up, and you needed space for guests, networking, etc. But, after retirement, it can be burdensome so do not hesitate to liquidate it so you can reinvest in something more fruitful.
- Keep your NPS and PF accounts active and also put some sum aside as SIP. These will contribute to investing in secondary goals even if they are not substantial at present. NPS and PF will meet the demands of old parents later, and SIP can contribute to the child’s higher education. Besides, it will also save you from all or nothing situation.
- Regular investment in shares, gold, property is useful when you have a surplus. However, when you have limited resources, it is essential to have a specific purpose or use with each asset like creating a travel fund instead of burning surplus as and when you have on it.
- As your priority and goals change don’t be afraid to rework the purpose of your asset as well. A large house at the time of growing children was useful, but during retirement, part of it can be rented to generate extra income.
Finance is a limited resource. Thus, you need to develop the skill of using and managing it appropriately. Impulsive decisions will take the control out of your hands and into the situation demanding attention, whereas when you assess and understand the multiple uses, the limited finance has to serve then even if it is a difficult decision to make.