1. The Rise of Digital Insurance Platforms

Technology continues to play a pivotal role in the evolution of Pakistan’s insurance sector. Digital insurance platforms are gaining traction, offering consumers a seamless experience to compare, purchase, and manage policies online.

There are several insurtech platforms in Pakistan now that are making life easier for customers. They can find customized insurance plans, whether it’s health, auto, or life insurance. This shift not only enhances convenience but also increases transparency, allowing consumers to make more informed decisions.

 Why This Matters:

• Reduced paperwork and faster processing times.
• Broader reach to underserved and remote areas.
• Enhanced customer support through AI-driven chatbots.

 2. Microinsurance Expansion

Microinsurance is emerging as a game-changer for low-income populations in Pakistan. With a significant portion of the population still uninsured, microinsurance provides affordable and accessible solutions to protect against risks such as health emergencies, crop failure, and natural disasters.

 Key Developments in Microinsurance:

• Partnerships between insurance companies and fintech firms to distribute low-cost policies.
• Increased awareness campaigns to educate rural populations about the benefits of microinsurance.
• The use of mobile payment platforms for premium collection and claims settlement.

Example:

Companies like Telenor Microfinance Bank have already pioneered mobile-based microinsurance products, enabling financial inclusion at scale.

 3. Focus on Health Insurance Post-Pandemic

The COVID-19 pandemic has permanently altered how Pakistanis view health insurance. In 2025, health insurance remains a top priority, with providers introducing innovative policies tailored to meet diverse needs.

 Current Trends:

• Telemedicine Integration: Many health insurance plans now offer teleconsultation services, enabling policyholders to access healthcare remotely.
• Preventive Care Coverage: Policies are evolving to cover preventive measures like annual check-ups and wellness programs.
• Family-Focused Plans: Insurers are targeting families with bundled plans offering comprehensive coverage at competitive rates.

 Tip for Consumers:

Evaluate plans for their hospital network, ease of claim processing, and value-added services like 24/7 medical hotlines.

 4. The Rise of Takaful (Islamic Insurance)

Islamic insurance, or Takaful, continues to gain popularity in Pakistan. Offering Shariah-compliant coverage, Takaful appeals to individuals who prefer ethical investment options aligned with Islamic principles.

 Key Features of Takaful in 2025:

• A growing number of operators offering both family and general Takaful products.
• Collaboration between banks and Takaful companies to provide bundled services.
• Enhanced digitalization of Takaful services, improving accessibility and customer experience.

 Fun Fact:

Takaful now constitutes a significant share of the overall insurance market in Pakistan, with double-digit growth expected this year.

5. Customized Auto Insurance Policies

With the rise in vehicle ownership and increasing road traffic, auto insurance is becoming a necessity for many Pakistanis. In 2025, customized policies are in high demand, catering to specific needs like ride-hailing drivers, electric vehicle (EV) owners, and first-time car buyers.

 Notable Trends:

• Pay-As-You-Drive Insurance: Premiums calculated based on driving behavior and mileage.
• Coverage for EVs: Policies designed to include battery replacements and charging station support.
• Add-Ons: Optional features like roadside assistance and zero depreciation coverage.

 Pro Tip:

Drivers can save on premiums by maintaining a clean driving record and opting for higher deductibles.

6. Climate Insurance: Preparing for Natural Disasters

Pakistan’s vulnerability to climate change and natural disasters has underscored the importance of climate insurance. Floods, droughts, and extreme weather events pose significant risks to lives and livelihoods, especially in rural areas.

 2025 Developments:

• Expansion of crop insurance programs to protect farmers from losses.
• Introduction of weather-indexed insurance, where payouts are triggered by predefined weather conditions.
• Collaboration between the government and private insurers to subsidize premiums for vulnerable communities.

 Why It’s Important:

Climate insurance not only provides financial relief but also encourages sustainable practices among farmers and businesses.

7. The Impact of InsurTech Innovations

The fusion of insurance and technology is known as InsurTech. This is driving efficiency and innovation across the industry. From blockchain to artificial intelligence, these technologies are transforming how insurance is bought, sold, and managed. Developments mentioned below are in international markets.

Notable Innovations:

• AI-Powered Claims Processing: Reducing claim settlement times from weeks to days.
• Blockchain for Fraud Prevention: Ensuring secure and transparent transactions.
• IoT-Based Monitoring: Devices like fitness trackers and car sensors provide real-time data to tailor premiums.

What’s Next:

Expect more personalized products and dynamic pricing models based on real-time consumer behavior.

8. Enhanced Consumer Education and Awareness

As competition increases, insurance providers are investing in educating consumers about the importance of coverage. Awareness campaigns through social media, community outreach programs, and collaborations with influencers are becoming commonplace.

Key Focus Areas:

• Busting myths around insurance being too expensive or unnecessary.
• Highlighting the long-term financial security benefits of insurance.
• Simplifying policy language to make it easier for consumers to understand terms and conditions.

A Step Forward:

These efforts are empowering consumers to make well-informed decisions, contributing to higher insurance penetration rates in Pakistan.

 Conclusion: A Dynamic Future for Insurance in Pakistan

The insurance industry in Pakistan is at an exciting juncture, with 2025 bringing a mix of innovation, inclusivity, and resilience. Whether you’re a first-time buyer or looking to upgrade your existing coverage, staying informed about these trends will help you make better financial decisions.

From digital platforms to climate insurance and the growing popularity of Takaful, the landscape is evolving to cater to diverse needs. If you’re ready to explore your options, platforms like Smartbenefits.pk are here to guide you every step of the way.

Ready to secure your future? Start exploring today and embrace the benefits of modern insurance solutions.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post Insurance Trends in 2025: What’s New in the Pakistani Market? appeared first on Smartchoice.pk.

Disability insurance is actually one of the most underrated types of insurance, yet it is also one that is very significant. This coverage works like a safety net; if a person falls ill and cannot work,  his or her financial stability won’t fall into pieces.

Why Disability Insurance is Essential

Disability insurance protects your income that may be lost through medical ailments or injuries that make you ineffective at work. One-fourth of the working force before the retirement period experience a disabling event. 

Without insurance, losing one’s money can lead to a disastrous financial breakdown. Your bills and mortgage bills keep rushing in while your money sinks quickly. Disability insurance keeps securing your long-term goals without any unexpected loss of income.

Disability Insurance Awareness

This is a form of replacement income when one cannot work due to some qualified medical condition. This is not health insurance; it pays for your health care. Disability insurance provides you with regular payments to continue your lifestyle and financial obligations.

Types of Disability Insurance

1. Short-Term Disability (STD): Disability that is from as little as 3 months or as long as up to 6 months in duration and is typically covered either through employer-employee plans or private disability insurance policies.
2. Long-Term Disability (LTD): Even longer periods of disability, sometimes even up to the age of retirement. The Benefits are payable after an elimination period, usually 3 to 6 months.

Key Terms

Pre-fund period: That is, the period from the date of disability to when the benefits will be payable

Benefit period: That is, the time period for which the benefits are paid

Definition of Disability: Disability means an inability to work in the current job one is performing (“own occupation”) or any job in which he or she might be capable (“any occupation”).

General Causes of Disability

Practically, disability results from long lists of possible causes that occur much more than you may think. A long list of causes of disability includes work-related injuries and other forms of accidents that result either from participating in different sports activities and driving motors; vehicles, road traffic, for example; and repetitive injuries that include carpal tunnel syndrome and chronic back ailments.

• Chronic Conditions: A host of diseases, such as arthritis, heart disease, and diabetes, qualify as lifelong disabilities. While these conditions may arise but obviously markedly limit the ability to work, this is not a disability.
• Mental Health Conditions: Depressive disorders, anxiety disorder, and PTSD are increasingly classified as a cause of disability if seriously impairing daily life.
• Complications in Pregnancy and Childbirth: Complications in pregnancy or delivery or recovery from childbirth can also be a cause of short-term disability due to recuperation.

This diversity of causes shows how unpredictable disability can be and makes the case for preparation.

Economic Consequences of Inability to Generate Income

Disability-related loss of income can quickly destabilize your finances. All these monthly expenses, from rent to utilities to food, add up to a pretty penny. But if there is no money coming in, then it becomes an incredibly difficult thing to do. 

And, of course, the worst case would be blowing through all your savings, losing your home, or racking up astronomical sums of debt with no protection whatsoever; disability insurance replaces a portion of your income, which might prevent such financial catastrophes and realize your long-term goals.

What to Look for in Disability Insurance

When choosing a disability insurance policy, look for these features:

• Coverage Terms: Plans typically pay 50-70% of your income. Check how long the benefits last.
• Waiting Period: A shorter waiting period means faster payouts, but premiums may be higher.
• Definition of Disability: Select policies that define disability as the inability to perform your specific job (“own occupation”) for better protection.

Why Group Coverage Through Your Employer May Be Inadequate

A group disability insurance taken through your employer is always inadequate:

• Low Coverage: The group only pays part of your earnings
• Short Benefit Periods: This coverage usually disappears after some years; if your disability persists beyond such years, you are left uncovered.
• Not Portable: the coverage goes with the job.

This will fill gaps in employer plans and offer better overall protection.

Who Needs Disability Insurance?

Disability insurance is essential for anyone who relies on their income, not just those in high-risk jobs. This includes professionals like corporate executives, healthcare workers, and educators, as well as high-income earners and individuals with dependents or financial obligations. 

Having disability coverage acts as a safety net, protecting you from the financial impact of an unexpected illness or injury that prevents you from working. It ensures you can cover essential expenses such as mortgage payments and everyday living costs during your recovery. 

Choosing the right policy is crucial for maintaining both your immediate and long-term financial stability, providing peace of mind in uncertain times.

Benefits Beyond Income Replacement

Disability insurance provides much more than just income replacement. It provides:

• Peace of Mind: You know you will get well without financial stress.
• Security for Dependents: The lifestyle and plans of your family are secured.
• Protection for Long-Term Goals: Your retirement savings or other long-term financial goals are safe and protected

The Cost of Disability Insurance: Is It Worth It?

Disability insurance premiums are determined by age, health, occupation, and the percentage of coverage. This is a cost, but the price is cheap compared to what a long-term disability will do to your finances. Disability insurance offers priceless protection in trying times.

How to Choose the Best Policy

When choosing a disability insurance policy, use the following guidelines:

• Assess Your Needs: Determine your monthly expenses and income requirements.
• Policy Comparison: Compare policy quantities, waiting times, and lengths of benefits periods. Compare premium prices as well.
• Ask Advisor: Ask an insurance consultant which policy best meets the requirement. 

Conclusion: Planning for Uncertainty

Life is full of surprises, which is why disability insurance offers financial security in unexpected situations. Investing in this essential coverage not only protects your income but also safeguards your future and that of your family. 

Take action now—waiting can increase your risks.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post The Importance of Disability Insurance: Protecting Your Income Against Uncertainty appeared first on Smartchoice.pk.

Microinsurance is designed to offer coverage to those who may not have access to traditional insurance due to its cost, complexity, or lack of awareness. However, despite its growing importance, microinsurance is often misunderstood. 

We will explore the various types of microinsurance, debunk common myths, and highlight the key differences between microinsurance and traditional insurance.

What is Microinsurance?

Microinsurance refers to insurance products tailored for low-income individuals and families who are often excluded from conventional insurance markets. The premiums are kept low, and the coverage is designed to address the specific needs and risks these communities face, such as health emergencies, crop failure, and property loss. 

The goal is to provide a safety net to prevent financial ruin in the face of unexpected events.

The above infographic by Global Market Insight shows the potential of microinsurance in our region. 

Types of Microinsurance

1. Health Microinsurance

Health microinsurance offers protection against medical expenses arising from illness or injury. It is often the most sought-after type of microinsurance, especially in regions where public healthcare is inadequate or expensive. These plans may cover hospitalization, doctor consultations, medication, and sometimes even preventive care.

2. Agricultural Microinsurance

In many developing countries, agriculture is the primary source of livelihood. Agricultural microinsurance helps farmers manage risks associated with natural disasters, pests, and crop failure. This type of insurance can cover loss of crops, livestock, or even income in case of adverse weather conditions.

3. Life Microinsurance

Life microinsurance provides financial support to the family of the insured in the event of their death. The coverage amount is typically smaller than traditional life insurance, but it is sufficient to help the family cover immediate expenses like funeral costs and outstanding debts.

4. Property Microinsurance

Property microinsurance covers damage or loss of property due to events like fire, theft, or natural disasters. This is particularly important in areas prone to environmental risks where losing a home or business could be devastating.

5. Microinsurance for Small Businesses

Microinsurance also caters to small business owners, providing coverage for risks associated with running a business, such as damage to inventory, theft, or liability. This type of insurance helps entrepreneurs in low-income communities protect their livelihoods and rebuild after setbacks.

Despite its benefits, several myths surround microinsurance, which can deter potential clients from taking advantage of it. Let’s clarify some common misconceptions:

Myths About Microinsurance

1. Myth: Microinsurance is Just Another Name for Traditional Insurance

Reality: While microinsurance and traditional insurance share the same fundamental principles, they differ significantly in terms of accessibility, affordability, and coverage. Microinsurance is specifically designed for low-income individuals, offering simpler products at lower premiums.

2. Myth: Microinsurance Provides Insufficient Coverage

Reality: Although microinsurance policies often have lower coverage limits than traditional insurance, they are designed to meet the insured’s specific needs. The coverage is tailored to be sufficient for the policyholder’s context, whether it’s providing healthcare, securing a home, or protecting crops.

3. Myth: Microinsurance is Too Complicated for Low-Income Individuals

Reality: Microinsurance is designed to be simple and easy to understand. The terms are straightforward, and providers often engage in education and outreach to ensure that policyholders fully comprehend their coverage.

4. Myth: Microinsurance is Not Sustainable for Providers

Reality: Microinsurance can be sustainable and profitable for providers when properly managed. Innovations in technology, such as mobile banking and digital payments, have reduced administrative costs and made it easier for providers to reach a broader audience.

5. Myth: Microinsurance is Only for Rural Populations

Reality: While microinsurance is vital in rural areas, it also benefits urban low-income populations. Urban dwellers face health issues, property loss, and unemployment risks, which microinsurance can help mitigate.

Difference Between Microinsurance and Traditional Insurance

Understanding the difference between microinsurance and traditional insurance is crucial for recognizing the unique value that microinsurance offers.

1. Target Audience

Traditional insurance primarily targets middle to high-income individuals and businesses, offering a wide range of products that can be complex and costly. In contrast, microinsurance is aimed at low-income populations who may not have access to or be able to afford traditional insurance products.

2. Premiums and Coverage

One of the most significant differences lies in the premiums and coverage amounts. Traditional insurance usually comes with higher premiums and larger coverage limits, making it suitable for those with more significant assets to protect. Microinsurance, on the other hand, has much lower premiums and coverage amounts, designed to be affordable for those with limited financial resources.

3. Product Design

Traditional insurance products tend to be complex, with various options, riders, and exclusions. Microinsurance products are simpler, focusing on essential coverage with minimal exclusions and straightforward terms. This simplicity ensures that policyholders understand their policies and can make informed decisions.

4. Distribution Channels

Traditional insurance is often sold through agents, brokers, or direct marketing, requiring face-to-face interactions or substantial marketing efforts. Microinsurance, however, leverages alternative distribution channels, such as mobile phones, local cooperatives, and microfinance institutions. These channels make it easier to reach underserved populations.

5. Claim Process

The claim process in traditional insurance can be cumbersome, with extensive documentation and longer processing times. Microinsurance claims are typically processed faster, with minimal paperwork, to ensure that policyholders receive their benefits quickly in times of need.

6. Regulation and Support

Microinsurance often operates under different regulatory frameworks compared to traditional insurance. Governments and international organizations frequently support microinsurance initiatives as part of broader financial inclusion strategies. These initiatives may include subsidies, tax incentives, or technical assistance to make microinsurance more accessible.

Conclusion

Microinsurance plays a vital role in providing financial security to low-income individuals and families who are often excluded from traditional insurance markets. By understanding the types of microinsurance available, debunking common myths, and recognizing the differences from traditional insurance, individuals and communities can better appreciate the value of this essential financial tool. As microinsurance continues to evolve, it has the potential to significantly improve the lives of millions by offering protection against life’s uncertainties in a way that is accessible, affordable, and sustainable.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post Microinsurance: Types, Myths, and Difference from Traditional Insurance appeared first on Smartchoice.pk.

This is where an emergency savings fund comes into play. An emergency savings fund is a financial safety net designed to cover unforeseen expenses, providing peace of mind and financial stability. In this blog, we’ll delve into why an emergency savings fund is essential and how you can build one effectively.

 Why an Emergency Savings Fund is Essential

1. Protects Against Unexpected Expenses

Life is full of surprises, some of which can be financially draining. Car repairs, medical bills, or home maintenance issues can arise unexpectedly. Without an emergency fund, you might find yourself relying on credit cards or loans to cover these costs, leading to debt and financial stress. An emergency fund ensures you have the resources to handle these expenses without disrupting your financial stability.

2. Provides Financial Security During Job Loss

Job security is never guaranteed. Economic downturns, company restructures, or personal circumstances can result in sudden unemployment. An emergency savings fund acts as a buffer, allowing you to cover living expenses while you search for a new job. This financial cushion can help reduce the pressure and allow you to focus on finding a suitable position without the immediate fear of financial ruin.

3. Helps Maintain Your Standard of Living

During financial crises, maintaining your standard of living can become challenging. An emergency fund helps you manage day-to-day expenses without compromising your lifestyle. It enables you to continue paying bills, buying groceries, and covering other essential costs without resorting to high-interest debt options.

4. Reduces Financial Stress

Financial uncertainty can cause substantial stress and anxiety, which affects both mental and physical wellbeing. Knowing you have an emergency fund to fall back on can provide peace of mind, reducing stress and allowing you to focus on other important aspects of your life.

5. Avoids High-Interest Debt

Without an emergency fund, you may resort to credit cards or personal loans to cover unexpected expenses. These options often come with high interest rates, which can quickly escalate your debt and create a vicious cycle of borrowing. Having an emergency fund is effective in avoiding high-interest debt and helps to control your finances.

 How to Build an Emergency Savings Fund

1. Set a Savings Goal

The first step to setting up an emergency fund is deciding on a savings goal. Financial experts usually recommend saving an amount that covers living expenses for three to six months. This provides a sufficient cushion to cover most emergencies. Calculate your monthly expenses, including rent or mortgage, utilities, groceries, transportation, insurance, and any other essential costs, to set your savings goal.

2. Create a Budget

A well-structured budget is crucial for saving money. Record all your income and expenses to see where your money goes each month. Identify areas where you can reduce or at least eliminate unnecessary spending. Redirect these savings to your emergency fund. Consistently reviewing and adjusting your budget can help you stay on track and reach your savings goal faster. For more details on budgeting, visit Managing Income in Pakistan: A Guide to Budgeting Money and Expenses.

3. Automate Your Savings

Automating your savings is one of the most effective ways to build an emergency fund. Set an automatic monthly transfer from your salary account to your savings account. This ensures you consistently contribute to your emergency fund without having to think about it. Treat your savings contributions like any other bill, making them a non-negotiable part of your budget.

4. Open a Separate Savings Account

To avoid the temptation of spending your emergency savings, consider opening a separate savings account dedicated solely to your emergency fund. A high-yield savings account can be a good option, as it offers higher interest rates, helping your savings grow faster. Keeping your emergency fund separate from your everyday spending accounts can also make it easier to track your progress.

5. Start Small and Build Gradually

Setting up an emergency fund can seem daunting, especially if you’re starting small. But every savings and budgeting help site will give you the same advice. Begin with small, manageable contributions and increase the amount gradually over time. Even saving a small percentage of your income each month can add up significantly over time. The key is to remain consistent and committed to your savings goal.

6. Cut Back on Non-Essential Spending

Find non-essential expenses that you can cut or remove temporarily. These could be your weekly dining out, less-used subscription services, or a monthly shopping trip. Divert the money you save from cutting on these expenses towards your emergency fund. Making small sacrifices now can lead to significant financial security in the future.

7. Earn Extra Income

Consider finding ways to earn extra income to boost your emergency savings. This could be taking on a part-time job, freelancing, or selling items you don’t need anymore. Any additional income you earn can be directly added to your emergency fund, helping you reach your savings goal more quickly.

8. Review and Adjust Regularly

Review your emergency fund progress regularly and adjust your savings plan as needed. Life circumstances can change, and your savings goal may need to be updated accordingly. Periodic assessments help ensure that you stay on track and make the necessary adjustments to your budget or savings strategy.

 Conclusion

An emergency savings fund is crucial to financial security, providing a safety net for unexpected expenses and protecting against financial stress. By setting a savings goal, creating a budget, automating your savings, and consistently contributing to your fund, you can build a robust financial cushion to safeguard your future. The key to saving successfully is consistency and commitment. Start building your emergency fund today to ensure peace of mind and financial stability in the face of life’s uncertainties.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post  The Importance of an Emergency Savings Fund: How to Build One appeared first on Smartchoice.pk.

Microinvesting in Pakistan is just starting to take off, with several banks facilitating microinvesting through their banking apps. Notable amongst these are the Zindagi app by JS Bank, as well as the HBL, and Meezan banking apps, which facilitate investments in their mutual funds through their bank accounts. These allow users to invest small amounts, as low as PKR 1,000 into their stock or mutual fund accounts. 

This guide will give you a thorough understanding of micro-investing in Pakistan and outline its advantages. 

What is Micro-Investing?

Micro-investing is a method of slowly accumulating savings by investing small amounts of money. It’s similar to collecting spare change in a digital format and then using it to grow your investments. 

On international platforms, users can link their debit cards to their accounts. Whenever they make a purchase, the app automatically rounds up the transaction to the nearest dollar and invests the leftover change into a designated investment account. This allows people to invest small, manageable amounts over time, ultimately contributing to their long-term financial goals.

Micro-investing is a strategy that involves regularly investing small amounts of money over time. Unlike traditional investing, which typically requires larger sums of capital, micro-investing allows individuals to start with as little as a few thousand. This approach is especially attractive for beginners in the world of investing or for those with limited funds to allocate towards investments.

 The Benefits of Micro-Investing

Micro-investing has gained popularity in recent years due to its unique advantages, especially for individuals new to investing or with limited funds. Here’s a detailed look at the key benefits of micro-investing:

Accessibility:

One major advantage of micro-investing is that it enables you to start with very little money. Traditional investing often demands significant initial capital, which can be a hurdle for many. 

Micro-investing platforms, on the other hand, permit you to start with as little as a few thousand, thus making investing accessible to a wider audience.

Diversification:

While many international micro-investing platforms offer diversified investment options, which helps reduce risk and increases the potential for steady growth.  In Pakistan, we are currently restricted to stocks and mutual funds and cannot spread our money across multiple investment options.

Affordability:

With micro-investing, you can begin investing with very little money. This makes it possible for anyone to start building their wealth, even if they can only contribute small amounts at a time. with the use of banking or investing apps, you can transfer a few thousands into your investment account and earn some additional profit from it. 

Smaller Investments: 

Since micro-investing involves small amounts of money, the financial risk is relatively low. This makes it an excellent option for those who are risk-averse or just starting their investment journey. It allows investors to gain experience and confidence without fearing losing a significant sum of money.

Learning Opportunity:

Micro-investing serves as a practical learning tool. With minimal financial risk, investors can experiment with different investment strategies and learn about the market’s dynamics without the pressure of substantial financial loss.

Consistent Savings Habit:

Micro-investing encourages a consistent savings habit. By investing small amounts regularly, you can develop a disciplined approach to saving and investing, which can pay off in the long run. 

A word of advice: don’t be unsettled by reductions in your investment amount over the short term; it is part of standard stock and mutual fund market fluctuations.  

How to Get Started with Micro-Investing

Unfortunately, there is currently no organized or official micro-investing platform in Pakistan. Most of the apps available require that you open an account with the financial service provider or register with the mutual fund. 

After this, micro-investment can be easily done through the many mutual fund apps, which usually require an initial deposit of PKR 5,000 and monthly contributions of as low as PKR 500. This can be done both through physical visits and through phone apps.

Why Micro-Investing is Important

Micro investing is at the takeoff stage, with many financial institutions beginning to explore avenues for offering investment options for small investors. There are multiple options for large-sum investors like fixed-income certificates, the evergreen SSCs, and DSCs, the small denominations of which are also good options for micro-investments. 

Large investors can also invest in the Stock Exchange, buy prize bonds, SSCs, DSCs, and invest in gold and real estate. Microinvesting allows individuals with smaller amounts to invest and with smaller risk appetites to invest their capital safely. 

Whatever the avenue you choose, the following tips will help you grow your micro-investment pool steadily.

1. Start Small and Be Consistent:

Don’t worry about investing large sums of money right away. Start small and focus on consistency. Over time, these small investments can grow to a sizable amount. 

2. Take Advantage of Educational Resources:

Many micro-investing platforms offer educational resources like articles, videos, and webinars. Utilize these resources in the Pakistani context to learn more about investing and make informed decisions.

3. Be Patient:

Investing is a long-term game. Be patient and avoid making impulsive decisions based on short-term market fluctuations. Stick to your strategy and allow your investments to grow over time.

Conclusion

Micro-investing is an excellent way for beginners to get started in investing. With low entry barriers and the ability to start with small amounts of money, it’s an accessible and effective strategy for building wealth over time. 

You can begin your journey toward financial growth and stability by choosing the right platform, setting up your account, and investing consistently. Remember to monitor your investments, stay informed, and be patient as your nest egg grows through micro-investing.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post A Starter Guide to Micro-Investing: Grow Your Wealth with Small Steps appeared first on Smartchoice.pk.

In Pakistan, we are also facing a rising tax rate as our government struggles to manage a challenging economy and a horrific debt burden. This increase in the tax rate is affecting the salaried class the most as the tax collection from this segment is increased in the FY2024-25 budget. 

Details of the New Taxes

The salary exemption limit was unchanged at PKR 50,000 per month for the past three years. However, this year the government has proposed big changes to taxable income above this threshold that will directly impact salaried individuals. 

Through the Finance Bill 2024 (or what we know as the Budget 2024), the tax rate for salaried individuals earning between PKR 50,000 and PKR 100,000 per month has been doubled. The proposed increase would see the tax rate go up from 2.5 percent to 5 percent on all income earned above PKR 50,000 in this bracket.

Similarly, people who earn a monthly income between PKR 100,000 and PKR 200,000 will pay 15 percent instead of 12.2 percent on everything above PKR 100,000, along with a fixed sum of PKR 30,000 instead of PKR 15,000 per annum in the past.

Withdrawals of Sales Tax Exemptions

While these changes in income tax rates and slabs will generate additional revenues of PKR 70 billion from the salaried class, the government will raise an additional PKR 200 billion from advance sales tax on retailers and wholesalers. Changes in capital gains tax collection are also likely to boost collection by PKR 50 billion.

Approximately PKR 30 billion in sales tax exemptions had been revoked from the health sector alone and another PKR 47 billion from the poultry sector. The withdrawal of exemptions in these two areas will create another spike of inflation in the coming months as price increases are passed on to consumers.

Understanding the Impact of Rising Income Taxes

This increase in taxes significantly affects the average person’s take-home pay and throws many people’s financial plans into difficulties. Rising taxes are also affecting our overall economic well-being. 

Understanding how these changes impact your finances and exploring strategies to mitigate their effects can help you navigate this challenging landscape.

Reduced Disposable Income:

Higher-income taxes directly reduce the amount of money you take home, leaving less for discretionary spending, savings, and investments. This reduction in disposable income can impact your ability to achieve financial goals and maintain your standard of living.

Increased Financial Stress:

With more of your salary going toward taxes, financial stress can increase. This stress can affect your mental and physical health, work performance, and overall quality of life. Coupled with rising inflation, there is double pressure on your income. 

Implications for Retirement Savings:

Higher taxes can impact your ability to save for retirement. With less disposable income, you might find it challenging to contribute to retirement accounts, potentially delaying your retirement plans.

Strategies to Mitigate the Impact of Rising Income Taxes

Explore Tax Deductions and Credits:

Itemize Deductions:

Review your expenses to determine if itemizing deductions instead of taking the standard deduction can reduce your taxable income. Common itemized deductions include mortgage interest, property taxes, charitable contributions, and medical expenses.

Take Advantage of Tax Credits:

Research and claim tax credits for which you are eligible. Tax credits directly reduce your tax liability and can significantly impact your overall tax burden. Examples include credits for education expenses, energy-efficient home improvements, and childcare costs.

Adjust Withholding and Estimated Payments:

Make Estimated Tax Payments:

Consider making estimated tax payments if you have additional or supplemental income sources or expect a higher tax liability. This approach can help you manage your tax burden and avoid surprises at tax time.

Consider Professional Financial Advice:

Consult a Tax Professional:

Engage a tax professional or financial advisor to review your tax situation and provide personalized strategies. They can help you identify deductions, credits, and planning opportunities specific to your circumstances.

Plan for Future Tax Changes:

Work with a tax advisor to anticipate and plan for future tax changes. Proactive planning can help you make informed decisions and optimize your financial strategies in light of potential tax increases.

Long-Term Considerations

Invest in Education and Skills:

Investing in education and skills development can increase your earning potential and help offset the impact of rising taxes. Higher-income levels can provide more financial flexibility and resilience against tax increases.

Advocate for Tax Reforms:

Engage in civic activities and advocate for tax policies that align with your financial interests. Participate in discussions about tax reforms and support initiatives that promote fair and equitable taxation.

Conclusion

Rising income taxes on salaries present a significant challenge for many workers, affecting disposable income, financial planning, and overall well-being. By understanding the impact of these changes and implementing strategies to mitigate their effects, you can navigate this challenging landscape more effectively. Maximizing tax-advantaged accounts, exploring deductions and credits, adjusting withholding and estimated payments, and seeking professional advice are essential steps in managing your tax burden and maintaining financial stability.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post Impact of Rising Income Taxes on Salaries: Strategies and Insights appeared first on Smartchoice.pk.

This has several effects on both money and savings. The most painful element of inflation is the increase in food and energy prices. This again usually affects the poor and the vulnerable the most. Rising prices mean a decline in both buying and selling, which ends up reducing a country’s GDP growth rates.

This is what is happening in Pakistan right now, and it has become so severe that it is now in the hyperinflationary stage. Hyperinflation describes quick, extreme, and uncontrollable price increases in an economy. Compared to inflation, in which prices for goods and services are rising steadily, hyperinflation is rapidly rising inflation, usually recorded at more than 50% per month.

In 2021 Pakistan’s inflation rate was 9.5%. In 2022 this inflation rate was 13.4%, and according to the State Bank of Pakistan, in March 2023, the inflation of Pakistan is 31.5%, with core inflation at 17.1% in urban areas and 21.5% in rural areas. (All figures are taken from SBP March 2023 report)

How Inflation Impacts Your Money and Savings

1.   Reduced Purchasing Power:

As inflation rises, the value of your money decreases, and the goods and services you could buy previously with a certain amount of money would now require more money. For example, if a cup of tea costs Rs.20 today and the inflation rate is 10%, next year, the same cup of tea might cost Rs. 22. If you have Rs.20, you can no longer afford the tea. Since we are a dollar-reliant economy, the dollar-rupee conversion is a key benchmark for assessing our economic strength. The Pakistani Rupee is currently trading at 288 for a US Dollar, which affects costs of fuel, imports, and the majority of other inputs in the economic value chain.

2.    Reduced Value of Savings

When you save money, you usually expect it to maintain its value over time if not gain it. However, with inflation, the value of your savings will decrease in actual terms. For example, if you have PKR 1,000 in a savings account earning 10% interest per year, but inflation is 13%, the real value of your savings will decrease by 3% per year.

If you are a retired adult living on your savings, you can’t keep up the same standard of living if inflation cuts into your purchasing power with every passing year.  Inflation can hurt your money well before retirement. Suppose that you are saving money for a specific goal, such as a college fund for your children or a down payment on a home. Your money’s purchasing power may decline while you’re saving it.

This is not to say in any way that salaried individuals are not affected by inflation. The majority of us do not get inflation linked pay raises and we end up losing income in economic terms due to the impact of inflation.

3.   Impact on Investments

Inflation can impact your investments as well as savings. Stocks and other investments may be performing well in the short term, but inflation can eat into their value over time. To keep in control ahead of inflation, investors often choose investments that historically perform well during periods of high inflation, such as commodities like gold or real estate.

To minimize the impact of inflation on your money and savings, you may want to consider investing in assets that tend to perform well during periods of inflation, such as real estate, stocks, and commodities. It’s also essential to review your savings and investment strategies regularly and adjust them as necessary to account for inflation.

How to Fight Inflation

Fighting inflation is a very big challenge, but there are several things that we can do to lessen the impact of inflation on our daily lives. Here are some things that can help:

1.   Create a budget:

One of the best ways to fight inflation is to create and stick to a budget. By monitoring your spending and limiting unnecessary expenses, you can limit the impact of rising prices on your daily life.

For more detailed suggestions, visit Managing Budgets In A Hyper Inflationary Environment

2.   Monitor your spending:

One of the best ways to combat inflation is to monitor your spending and avoid unnecessary expenses. By creating a budget and sticking to it, you can limit the impact of rising prices on your daily life.

For more detailed suggestions, visit How to Protect your Savings from Inflation

3.   Invest wisely:

Investing in assets that tend to perform well during periods of inflation can help protect your savings from losing value. These assets might include stocks, real estate, or commodities like gold.

For more details, visit How to Invest in a Recession

Inflation tends to cut into a consumer’s purchasing power over time. Fortunately, there are ways of preserving the purchasing power of your savings. That means investing but keeping your level of risk moderate.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post How Inflation is Impacting the Economy and your Finances in 2023 appeared first on Smartchoice.pk.

The recession alarms have been around since 2020. the pandemic started and caused the economy to stumble, recover, and get periodic jolts. The stock market and the interest rates have been see-sawing more than usual, and investments are coming into question. This is terrifying for people that already have money invested in the shares and other market instruments.

However, investing during a recession phase of an economy is challenging, but it doesn’t have to be. Just read ahead to see what you need to look for and the factors you need to consider.

Why Make the Effort to Invest?

The value of our money is continually shrinking over time due to inflation. According to current inflation rates, rs. 10 today would only be worth Rs. 6 next year. If this rate continues, you will lose 40 % of your money annually if you keep it as cash. If the rates your bank offers are less than the inflation rate, you will lose money even if you save it in a bank savings account.

Investing your money should always give you better returns on your savings, regardless of all the effort and risk involved. Investments imply better returns and, therefore, an increase in income for you. It also means you have more money saved in the long run (even after factoring in inflation). Investing in multiple avenues can give you more than 10% per annum at the least, even now.

Things to Evaluate in an Investment

Choosing where to invest during a recession will first require you to consider your personal goals. Are you looking to:

• Minimize the risk that an investment will fall in price during market volatility.
• Maximize long-term returns?
• Protect your money from inflationary forces?
• Create a source of fixed income.
• Take advantage of investing in the stock market while prices are low

Building a portfolio that applies all these strategies is an ideal scenario, but successfully applying any of them can have a significant positive impact on your financial position. Take a look at the options discussed to design a plan that suits your needs and preferences.

There is no sure-shot formula for investing money. What worked out for me may not work for someone else. The timing and planning of investment are both very critical. And lack of success at any time doesn’t mean you don’t invest. It means that you keep on looking for the route that is the best fit for your income and lifestyle. Once you find it, you keep on doing it on an ongoing basis.

Sectors that Perform Better during Recessions

Companies that list their shares on the stock market are divided into sectors. Sectors refer to the type of business the company is in. Some businesses are not affected by the recession as the product they sell has a fixed demand. Industries like telecommunication, monopolistic utilities like K-Electric, or SSGC,  healthcare services, and insurance companies that provide industrial insurance are some companies that will not be affected by recessions. Similarly, information technology providers, which fall under telecommunications, will not face a significant reduction in income.

In the same way, companies that cater to consumer goods will also not be affected by recessionary forces in the market.  Sectors like health care and consumer staples tend to outperform others as consumers manage according to changing economic situations. No matter how tough the situation, people must eat, go to the hospital, buy medicines, and get water to drink. These are the stocks that people should invest in during a recessionary phase as they will sustain their worth over the recession.

Similarly, other sectors like food and beverage, household and personal products, and tobacco will not see growth during recessions.  These cover products like clothing, restaurants, and luxury items, which are not the focus during tightening budgets. These stocks are not attractive during recessions (unless you have the capital to buy them at a low price for the long term). These stocks perform during a growing economy when people have money to spare on luxury items.

If you invest in individual companies during a recession, you can look for options in the abovementioned sectors. However, when you pick a stock, make sure that it has low debt levels, good profitability ratios, strong balance sheets with a low receivable cycle, and a positive cash flow. These are all critical for a company’s success in tough economic times.

Factors to look for When Investing

The most common choices for investing in the finance sector are stocks, bonds, and mutual funds. Other options are investing in real estate and small businesses, and many people eventually build up a mix of all these options when they get the opportunity.

The money you invest in stocks is increased through the dividends some of the stocks pay periodically to their holders. Bonds pay in the form of periodic profit payments according to the rate specified. At the end of the bond’s life, the bond’s total amount is returned to the holder. Making them one of the low-risk investment options.

Real estate investments pay off through rental payments and value increases (also known as appreciation) over time. There are also real estate investment trusts (REIT), a form of mutual funds for real estate holdings. REITs are usually owners of commercial and residential properties that are rented out. The rental earnings are then given back to the investors. REITs are good for getting a regular flow of additional income from your investment.

Mutual Funds that Track Specific Sectors

Investing in managed funds, like exchange-traded funds (ETFs) or low-cost mutual funds, is usually less risky than investing in individual stocks, which can be particularly attractive for inexperienced investors in a recession.

Mutual funds are comparatively more advanced than shares and ETFs, as they invest in a mix of shares, bonds, and even real estate, and you can shop around for a fund that you find suitable. Mutual funds give returns in dividends, coupons, or even profits, depending on the type of assets they invest in.

Investing in any of these funds exposes you to a specific set of assets instead of just a single investment (like a company stock). In recessions, this is a way to invest in several companies in the most promising sectors while avoiding the risk of concentrating your money on a single company.  If one company in the fund does not perform well, the better performances of other companies help to adjust for the losses of the loss maker.

Investing in any form of funds helps reduce your risks and therefore helps reduce the threats to your capital compared to investing in stocks directly. However, lower risks usually imply lower returns, a tradeoff that all investors must make.

Invested Income

The income from different investments is called various things, depending on where it comes from. Stocks give dividends, mutual funds pay profits, and bonds pay coupons. These are all options that can be invested in over a more extended period.

A pro tip for investing is to make it a linked part of earning. You should invest some portion if you get paid for any service. You need to invest logically to build up your wealth. This will require your time and focus on the big picture.

Research details and tips, keep an eye on your investment sectors and shares, and keep updated with the latest news and rumours. Don’t go for it if you are not okay with a particular option like bonds, commodities, or even shares. Look for other options. Every investment option has some risks involved, and you decide which set of risks you will be more comfortable with.

By doing this as a habit, and over 5-8 years, you should have enough saved up through compounding and portfolio growth to have a sizable income stream prepared from your investment

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post How to Invest in a Recession appeared first on Smartchoice.pk.

The alarmingly high inflation rates are soaring into the double digits, making money management difficult for the average middle-class family. To learn more about how to manage your money in tough times, visit our blog, Managing Budgets In A Hyper Inflationary Environment

In a country that invests primarily in traditional money based options like savings certificates, savings accounts and fixed deposits, growing inflation is a severe problem that needs a planned-out financial strategy that deviates from the norm.

Our savings are being significantly affected by inflationary forces. Global events like the Russian-Ukraine war, Covid-19, and our own inhouse politics are all factors of instability and prove that inflation is an uninvited element in our lives.

These international events have severely impacted long-term investments and are threatening our savings while increasing the average cost of living across Pakistan.

The rise of inflation in recent months shows that it is always essential to ensure that rising prices aren’t eroding your savings.

However, not every investment option is vulnerable to market fluctuations. Now that we all know what inflation is and what it is doing to us, the real question to ask is where should we invest our money to insulate it from the invasive effects of inflation

How Can We Beat Inflation by Investing

Our money is a rapidly depreciating asset in today’s economy, and the only way to combat rising inflationary rates is to invest carefully. Investors have difficulty assessing which investment opportunities can yield higher returns during rising inflation.

Since inflation has the power to turn positive returns to negative, consider an inflation rate of 10%, while most banks in Pakistan offer a maximum of 8% interest rates on fixed deposits. This difference between inflation and returns reduces your long-term money and erodes your long-term savings.

Remember that there is no definite route to beating inflation. However, there are multiple strategies that can help reduce the impact of rising inflation on your investment portfolio and wealth generation plan.

We’ll go through some of the steps that can help protect savings from inflation.

Shop around for the best interest rate

It is a general rule of thumb to have a minimum of six months’ worth of living expenses saved in an easy-access account as an emergency fund. This account should ideally be an easy to access one so that you can instantly withdraw money from it.

 Interest rates on savings accounts are usually low but vary, so make sure you shop for the best rate.

Try to Invest for the Long-Term

If you can afford to lock your money away for an extended period of time, long-term investment options are a better choice. Investing in stocks, bonds and equity funds have the potential to offer substantial returns on your initial investment. This is particularly true if you start investing in down markets.

 All these options are driven by the principle of compounding and can add increasing value to your invested sum. However, not every long-term investment can do this, so invest after doing your research.

Look Beyond Fixed Deposits

Historically fixed deposits are not a way to grow your wealth and do not protect the investor from inflation. If the interest rate is less than the average inflation rate in the country, then your investment returns are compromised.

To ensure long-term financial stability and security, you must send your money to work. Savings through fixed deposits are safe but are rarely sufficient to beat inflation.

To insulate savings from inflation, you need to look beyond fixed deposits as investment options. Explore avenues like stocks, mutual funds, real estate, gold and exchange traded funds (ETFs) to ensure you stay ahead of the crowd.

·      Gold

Gold has always been a preferred investment option for people in Pakistan. It is generally seen as a good deterrent against inflation. Culturally we all own gold in the form of gold ornaments passed down through the generations.

The metal has constantly seen an increase in value during economic crises. It is usually seen in an inverse relation with the US dollar. Apart from the typical investment in physical gold in the form of jewellery and coins, investors can also explore options like digital gold, gold ETFs and sovereign gold bonds, as well as silver to store their wealth.

·      Real Estate

Another successful investment option is real estate. Real estate usually works as a hedge against inflation and allows property owners and landlords to increase the value of their tangible assets as well as earn rental income from their investment

There are two ways to invest in real estate: by buying property direct or indirect investments through real estate investment trusts (REIT). The latter is also an opportunity for small and medium investors to participate in the commercial real estate market.

·      Mutual Funds and ETFs

Mutual funds and ETFs are very popular globally in helping to make savings inflation-proof. Most usually offer returns linked with the prevailing rate of inflation.

However, both can be volatile and are a higher risk option. Mutual funds and ETFs are viable options of investing available to new investors and allow you to invest in lump sums or through a monthly investment plan.

This means that people with money lying in their accounts can start a monthly or periodic investment plan. These can be liquid in nature, so you can invest as low or as high as you want.

Shift longer-term savings into Equities

For savings that are above what you need for your emergency fund and short-term needs, evaluate different options of investments. Go for the one with better potential for long-term growth.

In Pakistan, historically, the most effective investments that have beat inflation over the long term have been real estate and equities. However, you need to have the risk appetite to accept fluctuations in asset values.

In addition, the average middle-class person rarely has the amount of capital lying around to invest in real estate options. It needs to be saved up for.

Choose your investments wisely

To avoid risk, you can choose other investments that mitigate losses in value and cover inflation risk. However, these would be less profitable and offer lower returns.

Inflation’s impact on the economy is never uniform, but it is recurring. Inflation is not likely to go away, and relying on traditional forms of savings and investments won’t be sustainable in the long term, especially with the ever-growing demands and needs of our families and children.

To ensure you have the financial potential to pay for necessities and indulge in the luxuries of the modern world, you must embrace change and acquire greater financial literacy to save your hard-earned money.

Maximise Tax Efficiency

A sensible investment strategy should involve holding a wide variety of assets and using tax-efficient investment options. Understanding what is suitable for you isn’t always easy, and that’s where getting some competent advice can help.

With the tax net being widened and deepened, we need to assess which avenue would be the best in light of tax rates. Many pension-based investment plans are tax-efficient vehicles that can help boost your savings’ future value.

Bottom Line

If you invest, then you can reduce the risk of losing value to inflation by spreading it between different forms of investments, known as asset classes. These could be shares, bonds, gold, property, and cash. The process of spreading out investments in different asset classes is known as diversification.

A diversified portfolio doesn’t guarantee you’ll be protected from losses. But it does help lower the risk of losing value to inflation. This happens as the values of different types of assets don’t always move in the same direction.

In a diversified portfolio, a fall in the price of one investment has less of an impact overall.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post How to Protect your Savings from Inflation appeared first on Smartchoice.pk.

The index measures 12 quantitative and qualitative categories, which can be classified into four main categories of freedoms:

1. Rule of Law(property rights, government integrity, judicial effectiveness)
2. Government Size(government spending, tax burden, fiscal health)
3. Regulatory Efficiency(business freedom, labour freedom, monetary freedom)
4. Open Markets(trade freedom, investment freedom, financial freedom)

According to the Index, economic freedom is the most critical variable for continued economic development. At its core, financial freedom is about individual autonomy, concerned chiefly with the freedom of choice individuals enjoy in acquiring and using economic goods and resources.

Not surprisingly, Pakistan underperforms in most of these categories, which means that striving for financial freedom is even more challenging for those working and living in Pakistan.

This article going to discuss how we can improve our chances of achieving financial freedom despite living in Pakistan, fighting against cultural and habitual norms which hinder our chances of living a financially relaxed life.

Defining Financial Freedom

Financial Freedom is defined in economic terms as having an accessible and efficient functioning formal financial structure. This structure ensures the availability of comprehensive and easy-to-use savings, credit, payment, and investment services for individuals and businesses. This means that financially free people can spend, borrow, and invest according to their desires without any hindrance. Access to financing and credit on easy terms are also part of financial freedom

People in the Asia–Pacific region, overall, are hampered as the freedom to invest, and financial freedom rates are far below world standards. Pakistan also lags on all the financial inclusion indicators and economic freedom linked with banking and capital markets. The Financial Freedom score of Pakistan is 40.0 against the world’s average of 48.7

As per the Index of Economic Freedom, there is a clear link between higher levels of financial freedom and growing per capita income. Over the past few decades, the countries that adopted some form of free-market capitalism through the private sector achieved better scores for financial freedom.

This can be done by offering businesses an infrastructure of efficient regulations and opening up the free flow of goods, services, and capital. This allows people and, eventually, countries to break away from the vicious cycle of poverty and dependence measured by the Index as financial freedom.

What does Financial Freedom Mean for Individuals?

Social media and the increased availability of information have skyrocketed the pressure to gain more money. Most of us are looking for peace of mind so we can be financially free. To achieve your goals in a well-planned way, you must be able to deal with your finances.

The need to plan for an independent income starts from your first salary. The first real full-time job should be an indicator to start investment planning. Even those of us eager to learn about money management and get ahead find the task daunting.

There is a shortage of available information and a lack of suitable investment options. The main reason? We are conditioned culturally to be passive consumers and not think critically about our financial future. There is a lack of suitable options for those who want to plan out our financial futures.

The value of our money generally decreases with time due to inflation. Rs. 1000 today would only be worth Rs. 850 next year, according to the current inflation rates. If this rate continues, you will lose roughly 15% of your money annually if you keep it as cash. If the rates your bank offers are less than the inflation rate, you will be losing money even if you are saving it.

Here are some things to know if you want to attain financial freedom while living and working in Pakistan. Financial freedom is possible and achievable with minor changes in your habits.

How to Achieve Financial Freedom

At the beginning of your career, you may not be able to see yourself in the future because you are more focused on paying bills and saving money for big-ticket items. However, the dreams that you have now will only come true with saving and investing heavily now.

Your ability to reach your goals and be financially secure is dependent on maximizing wealth on investments. This can provide you with the means for future financial freedom. For example, start getting money automatically withdrawn from your paycheck into an equity fund or voluntary pension scheme. You’ll have a solid nest egg when you leave the workforce.

1.    Start Investing and Saving Early

Savings are an essential secret for economic and financial health. Pakistan has one of the lowest savings rates in the world. It has a gross savings rate of 12.3% in 2019 against the world average of 24.6% and much below peer countries in the region.

According to economic development theory, saving is key for investment to take place, and investment is necessary for achieving financial growth. This means that, for a person to achieve financial growth and development, the level of savings must be high and sustainable.

Start investing in mutual funds, ETFs, and the stock markets. There are options available for those that make an effort and give time for research. Once you have more significant amounts saved, start investing in commodities. For those that start off early, the extended horizon of investing (the amount of time between now and when you access your money) makes it possible to invest in higher-yield but riskier instruments. However, even at this early stage in your investment journey, it’s important to create a well-blended portfolio through strategic investments with lower-risk options.

Even if you spend hours analyzing financial data, the changes you could have on your investment rate would be minimal. If you have the mindset, start a small side business like a food cart, food catering, reselling, or even tutoring lessons.  The point is to maximize your potential and generate income to be independent.

2.    Budgeting your Income

Budgeting is the key to every successful savings plan. Regardless of how much you earn, if you have a high income or are living payday to payday, you must keep track of your income and manage where the money goes.

Budgeting gives you an overview of your finances and gives you a better perspective to manage your earnings.  Managing or building a budget isn’t just about controlling your monthly cash flows but about seeing how much money you make and where you spend it and then evaluating if you are doing it right or if you need to reassess your expenditures.

A well-made budget will help you keep track of your spending and identify where your cash is going. Documenting all spending heads can help you see where you unconsciously spend more than you should. This helps you identify where to free up additional cash to repay your debt faster or create an emergency fund.

3.    Focus on saving more than you spend

I always say this, but please buy and spend carefully. If you skip your weekly fine dining ritual, buy less branded goods, and make a habit of buying from sales, you’ll enjoy the growth in your account more than that of your wardrobe.

4.    Borrow Money to Earn Money

To save more money, you may need to find ways to spend less or make more.  One easy way is to borrow money to buy assets that will earn money for you. It is sensible to borrow money to buy a house, as long as it makes financial sense and doesn’t put you in debt. This means assessing if the rental saving or earnings will be enough to justify the loan instalment you must pay.

However, if you get an expensive financial loan to make your purchase, achieving your goal may be too expensive. You could save money instead of taking out the loans. If you want to buy something (e.g., a car) but don’t know if you’ll be able to afford it, consider researching and comparing different lending resources. If you do, you may find that you are looking to buy something that falls out of your price range.

5.    Invest in Yourself

Investing in yourself and improving your skills will ensure a guaranteed return in terms of both economic and personal fulfillment. Rather than investing in something material, become a better version of yourself, and you will see the long-term impacts. Many of us get caught up in earning and working and leave chances for career and earnings growth by not working on ourselves more.

Investing in further professional qualifications and skills is an investment that is closely linked to your decision-making and has excellent results over the long run. So go for that degree or certification and make it worthwhile.

Conclusion

As a nation, we save less than our counterparts across the border or in other countries in the region. With the inflation levels at an all-time high, it is time that we all focus on saving more and reducing our expenses.

Most adult Pakistanis living in urban cities work daily and earn appropriate money. Most of us usually have empty wallets and emptier bank accounts at the month’s end. This is particularly true now with the inflation making our money seem to have wings.

This state of being broke does not have to be the norm, and it can be avoided or at least reduced to some extent by having some discipline in your spending patterns. Spend wisely and with a long-term plan in mind so that you can do some effective financial planning.

Financial freedom is not something that happens overnight. If you want financial freedom, you need to plan and put that plan into action to get to the point where of the hard work that you put in will be worth it.

Changing old habits is hard and scary, but if you don’t act, what does your financial future really look like? All you need to do is take one step, do one thing that will get you closer to your financial freedom, the key lies in acting.

Sadia Zaheer

Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.

The post What Is Financial Freedom? How To Achieve It In Pakistan? appeared first on Smartchoice.pk.