I’m 26 years old and not financially stable. I don’t know where ro take my life at to get better financially. What should I do?

First of all congratulations to you that at the age of 26 you are already thinking about financial stability.

At 26 I had no clue!

Like a lot of people from my generation, I grew up without any financial literacy. Though I always had a decent job and earned a comfortable salary I didn’t save anything. It was well beyond my 30s when I woke up to the reality that I am practically broke.

I still remember the night when I was walking and talking on the phone to a friend and trying to recover some money she owed me. I am generally bad at asking for my money back. But that day I was desperate. I just shifted to a new city to take up a new job. I was yet to receive a settlement from my last company. I was staying in company-provided accommodation for the initial few days and needed to find a place urgently.

When I looked back, I was amazed that even after years of a decent professional career I didn’t have money for my basic needs. And that moment I decided to do something about it.

It took me about two years for me to go from that moment to achieve a balanced financial state.

I continued with those initial lessons learned and over the years they have paid off.

Today, I am completely debt-free apart from a home loan. I have two credit cards which I use for digital purchases, and I pay it off in full every month. I have a near-perfect credit score. I have invested in long term funds. I have enough liquidity to survive for a year if things come to that.

Building financial health is a long term process but here are some of the steps that helped me.

Start with an honest audit: It’s important to know the exact nature of your financial health. Most of the people who are in debt don’t know how much money they owe. You need to do a hard audit of your loans, credit card debts, EMI, etc. and arrive at a number.

Once you have that number put it everywhere. Print it out in large fonts and keep it in your wallet. Put it on your fridge door. Put it on your desk. Put it on a sticky note on your computer. This will make you rethink every time you feel like spending on something unnecessary.

Make a repayment plan: Once you understand the nature of your debt, make a plan for repayment.

As a rule of thumb, you should focus on paying off all your credit cards in full. With up to 36% interest rates, credit cards are like black holes that sucks all the earnings of you. The only way to get rid of them is to pay in full. When you are at it, use an app like Cred, to get some extra benefits out of those payments.

Next, pay off any personal loans you might have.

Education loans and home loans are generally long term and can be viewed as investments.

Save like crazy: Anyone who shops in a supermarket will relate to this experience. In your mind, you are picking up low-cost items, but at the payment counter you end up getting a bill that runs into thousands.

The same applies to your financial life. Small expenses add up to big amounts.

So, try to control those small expenses.

For example, can you do your chores on your own, instead of hiring a maid? Even if you save 2K per month it adds up to 24K in a year (plus you can learn stuff listening to Audiobooks while doing your chores).

Can you make your own coffee instead of going to a cafe?

Can you cook instead of eating out?

Can you take the bus instead of Uber?

I know it sounds petty. But remember, we are trying to get into a new money-saving mindset. And small things add up to big things.

Use the rounding off hack: This is a neat trick to increase awareness about financial health. End of every week look at your bank account and transfer the change to another account and make it a rounded number.

For example, if you have 9,856 in your account, transfer 156 to another account so you have 9,700 in your main account. This will help you remember exactly how much money left in your account and get a grip on your spending habits.

Open a recurring deposit: Open a recurring deposit for all your big purchases. Say you want to buy a new phone. Save money for that purchase till you can buy it in cash (or at least 50% cash).

Whenever possible use cash to buy things. Get out of the EMI trap.

Be part of like-minded communities: We buy a lot of unnecessary things because of peer pressure. Change your peers. Be a part of communities like F.I.R.E ((Financial Independence, Retire Early).

Read and watch videos on minimalism.

Follow people like Matt D’Avella and Leo Babauta. If your social media feed is full of content that supports a frugal lifestyle, it’s much easier to avoid the temptation of splurging on stuff.

Read books about money. I’ll recommend I Will Teach You to be Rich by Ramit Sethi and Rich Dad Poor Dad by Robert Kiyosaki as must-reads.

Try to increase your income: It may not be an option always. But can you find a higher paying job than your current one? Can you do some freelancing work?

Personally, I don’t like doing gig work. But during the initial phase, I took up some freelance work to augment my earnings.

Learn to invest: Once you have some control over your finances, start to invest. The best way to go is to automate your investments using a service like Scripbox. You can start with a small amount. But what matters is establishing the habit of investing.

In the end, building financial health is similar to building physical health.

If you want to get fit you need to commit to exercising regularly, eating healthy. You also need to have the patience for results to show.

Similarly, commit to spending less, saving more and if possible earning more, and I guarantee that in two years you will be in a much better place.

Hope this helps.

All the best!

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