“A penny saved is a penny earned”
Imagine you’re working in a private firm with a salary of ₹50k/month. You will certainly have responsibilities and a few aspirations. But, one random Tuesday, you lose your job because of an unforeseen situation. And when you get back home, your landlord is waiting at your door to collect rent. Meanwhile, your father calls you for some financial help to undergo cataract surgery. Along with this, you have a bunch of friends texting you, asking if next month’s Goa plan is still on. Woah, that’s a lot!
As dramatic as it sounds, and while it may seem unreal, that’s how, unfortunately, uncertainty can strike. However, it doesn’t have to be this chaotic. To have a smooth ride amidst chaotic situations, having your personal finances in check is important.
What is Personal Finance?
In simple words, personal finance primarily pertains to how an individual or family manages their money. Personal finance depends on your income and how you use your money to cater to your needs, expenses, goals, and aspirations.
To help you achieve financial freedom depending on your goals, managing your personal finance requires you to save, budget and investment to prosper in the long run.
Importance of Personal Finance:
People often neglect the idea of personal finance as a whole. The issue is that they never realise that personal financial planning is the most effective way to manage money. Here are facts illustrating this:
- Financial literacy is crucial. Being financially literate allows you to make sensible decisions by thoroughly analysing your finances.
- You can easily achieve financial freedom by strategically planning your long-term and short-term goals. Thus, giving you the flexibility to pursue your emotional, creative and aspirational desires when you have control over your finances.
- In addition, managing your finances well helps you maximise your revenue.
Money Management and Wealth Creation
There are a number of ways to manage your money and ultimately create more money out of it. Here are some of the best practices to start managing money:
Setting Up an Emergency Fund Account
Having an emergency fund is one of the important to-dos of managing money. This is your security money in times of crisis. In case of a sudden accident or any financial crisis, your emergency savings will be there for you.
Track Your Expenses
Personal finance modifies your lifestyle by controlling your expenses; as a result, you won’t waste your money on useless stuff. So, manage your money properly by checking how you are spending.
Enhance Your Cash Flow
Furthermore, implementing a financial plan can boost your cash flow. You can quickly enhance your cash flows if you maintain track of your expenses and control your spending habits. For example, by planning your tax, you can save much of your money.
Refrain From Taking Unnecessary Debt
Personal finance lets you stay away from debt—more specifically, away from unaffordable debt. Your personal finances constantly serve as a reminder of your income and expenditure patterns. Therefore, this control will keep you away from massive debts that may be difficult or impossible to repay and ultimately hamper your financial stability.
Expanding Your Financial Resources – Double Your Assets and Double Your Income!
With careful money management, you gain better knowledge about budgeting and investing. This will assist you in making suitable investments and allowing your money to grow. So by planning your finances well, you not only save your money but also earn more money.
5 Smart Financial Ways to Manage Your Money
In order to create the ideal personal financial plan, many ideas are woven together, such as planning for taxes, banking, mortgages, spending, investments, retirement, and insurance. Here we present 5 aspects of personal finance that are crucial in your money management strategy:
- Savings and Budgeting
- Insurance – Financial Protection
- Tax Savings
- Retirement Plans
Savings and Budgeting
Savings are the foundation of your personal finance. If you have a proper budget and know how to save and where to save, you have already piled up a good amount of savings for the future. Life is full of surprises; not all surprises bring us a smile. Some uncertainties come unwelcomed, and savings come to our rescue. To save more money:
- Monitor your spending: Track your expenses to understand where your money is going. This will help you to control your spending and save more. For this, you can refer to your bank account statement or set up expense trackers like Mint or GoodBudget to limit your spending.
- Apply the 30-Day Rule: In this, all you have to do is control yourself! Next time you see something, don’t buy it immediately; wait for 30 days. After 30 days, if you still feel you need it, then buy. If you forget about it or don’t need it- hurray, you saved your money.
- Start budgeting: Cut down your expenses. You have to prepare a list of your needs, not wants. Further, do your grocery shopping from a wholesale store to save money and avoid frequent ordering online. Have a wholesome budget for the month and adhere to it without making any excuses.
An investment is a process wherein an investor puts in money on a commodity or asset with an intention to make a profit in the future. ‘Appreciation’ plays a dynamic role in investment. An asset’s value increasing over time is referred to as appreciation. When a person invests in a commodity, they do not intend to utilise it as a source of immediate consumption. But instead, as a tool that increases wealth in the future, that’s how you let your money grow with investment. Some of the best ways to invest are:
- Bonds: Bonds are an excellent choice if you want to invest in something with minimal risk. In Bonds, Governments and businesses can borrow funds from investors. Bonds are typically issued to raise money for projects. In return, these bond issue pledges to pay back the investment plus the interest over a defined time frame.
- SIP: SIP is considered one of the best planned and disciplined investing techniques. Today, mutual funds offer each investor the chance to make systematic investments. An investor can place fixed investments in any mutual fund scheme depending on their preference at regular intervals using the SIP option to benefit from compounding.
- Cryptocurrency: Cryptocurrency is the most uncertain and volatile form of investment that is in great demand these days. Yes, investing in crypto certainly comes with its risk but brings extremely high-profit returns. Bitcoin and Ethereum are some of the common cryptos you can consider investing in.
- Direct Equity: Direct equity investments are the type of investments made by an investor directly with the company by purchasing their shares or stocks. Equity is the funds invested directly in the shares of the company. This is a great investment option once you learn more about investment and gain experience as an active investor.
Insurance- Financial Protection
Financial security is a must to combat any unforeseen situation. Whether you go jobless or meet with an accident, life won’t stop. Securing yourself with insurance will help you cope with any challenges life throws at you. Today, from your phone to your life, everything must be insured. There are countless insurance plans in the market. Below we list some of the top must-have insurance plans:
- Term Life Insurance
- Health Insurance
- Car Insurance/ Automobile Insurance
- Homeowner Insurance/ Rental Insurance
- Accidental Insurance/ Disability Insurance
Several clever strategies exist to reduce taxes and reap the most significant savings. Unfortunately, most people tend to procrastinate tax planning. One advantage of tax savings is the ability to claim deductions for a range of long-term, necessary expenses. For example, the Income Tax Act allows tax-saving deductions for house loan interest. A better strategy is to begin investing in the fiscal year’s first quarter and take advantage of the best returns from various tax-saving investments. The below table highlights the best tax-saving investment options under Section 80C. Have a look and plan your tax saving accordingly.
Retirement planning implies taking steps to save enough money to get the desired levels of retirement income. Once you retire, there should be no hassle between you and your aspirations. In order to have a solid retirement plan, you must consider the following components in your financial planning:
- Recognise sources of income
- Estimation of expenses
- Implementation of a savings plan
- Management of assets
- Risk Management
5 Smart Apps for Better Money Management
When one thinks of managing finance, there is an emotional roller-coaster. Learning how to manage your finances is an art, and these smart apps will help you manage your money better:
- CRED– CRED is a credit card management app. This app helps you pay bills on time, gives you cash backs, points and many other benefits on your spending too. Thus, helping you earn even when you spend.
- Supersplit or Split wise– Most of us today live with flatmates or have a bunch of friends we are usually with. Whatever the case, these apps help you keep track of your spending even when you actively socialize.
- Wallet- Wallet helps you manage all your bank accounts simultaneously with this one app all alone. It brings in all of your bank accounts, credit cards, debit cards, UPI and other payment methods you employ. It also analyses financial data and produces relevant results to help you maintain control over your finances and improve your money management.
- Expense Manager– The expense manager helps you keep track of your budget by continuously monitoring your expenses. It is one of the best personal finance apps to stick to if you are on a budget to control expenses.
- Monefy– You can keep track of all your bills and expenses with Monefy. Furthermore, you can save a lot of your money using Monefy.
Golden Advice for Your Personal Financing Plan:
- Don’t delay; start your financial planning early.
- Learn more about taxes and finances at the earliest. The more you understand, the better you can manage your money.
- Always devote a small per cent of your income to your emergency funds, and emergency savings must be in an easily accessible account to avoid any last moment hassle.
- Never co-sign a debt agreement. Never!
Financial planning is not a process but a journey. You discover something new, you make mistakes, you get confused, but at last, you keep learning. So, enjoy this journey, manage more money and save even more money!