Personal finance refers to the methods, techniques, and ideas used by individuals to plan their finances frugally in order to reap lucrative returns in the future while generating a supposedly, more-than-sufficient savings to lead a peaceful retired life. However, one must not forget that the foundation for leading a comfortable life post retirement is to be laid at a very early stage, preferably when one’s in the 20s.
Personal finance involves multifarious aspects such as mapping expenses against income, taking care of investment needs, medical needs, insurance, planning for your child’s education and marriage, planning finances for your dream home, and saving money for an easy retired life. Yes, the list just looks endless. Therefore, a measured approach to personal finance becomes all the more critical. Thus, you must start planning your personal finances or take help of experts to do it more effectively as soon as you start earning money.
The first thing that you should remember about finance is that it should not remain stagnant for any period of time, leave alone long periods. Finance is like that young kid who grows well when you provide the kid with the best upbringing, but becomes a spoilt brat if you pamper the kid. Therefore, the best method that you could use to deal well with finance is to keep it moving.
Here are few useful tips for managing your personal finance:
Tip 1: Hit action stations
Reading about how to improve your personal finances is just a beginning, but it has absolutely no meaning if you do not act on your plans in time. Please remember that before you can get anywhere with your personal finances, you need to make a beginning, which is right now. If you are reading this article, you know that you should be taking steps to get your personal finances in order.
Tip 2: Clear your debt as soon as possible
None more than you would know that credit card debts, education loan installments, and other fixed monthly payment towards your debt are the biggest enemies to your personal financial plans. They often tend to cripple you and stop you from hitting action stations on your finance plans. Therefore, it is advisable that you sit and work out ways to clear these debts as soon as possible, which would increase your disposable income available and make it easier for you to plan your finances.
Tip 3: Learn to distinguish between wants and needs
To bring your personal finances into perspective, you need to understand the difference between wants and needs. Please note that there is nothing inherently wrong with small luxuries, and that you should be able to enjoy many of the non-essential things that you possess. However, it is crucial to know that wants are not synonymous with needs. If you master this skill, your finances will be in a much better shape. Therefore, take some time out
to evaluate your true needs critically as against your wants. If you are having trouble distinguishing them, create a plan to eliminate impulsive spending.
Tip 4: Live within your means
Remember that there are no two ways around this one. If you want to keep your personal finances in order, you need to live on less money than you actually earn. This would mean that you either purchase items and services that are less than what you currently earn, or you figure out a way to increase your salary/income, which could enable you to spend more, keeping expenses less than what you earn. Thus, if our grandparents told us when we were kids to ‘first earn and then spend’, you would now be able to catch the purport of what they actually meant. Track your monthly expenses to see if they exceed your income or are less than your earnings for each month. Based on this, create a budget that would allow you to keep your financial plans on track, going forward. Please note that if you are spending more than what you earn, you need to decide whether to curb unnecessary costs or figure out ways to increase your income. Most people can balance their budget without changing their current lifestyle.
Tip 5: Set aside funds for yourself, before making mandatory payments
Remember to set aside a portion of your income/salary, preferably 10%, for yourself as part of a savings exercise. This would get you into the all-important savings groove.
Tip 6: Ensure that you have well-defined financial goals
To reach your financial goals, you need to know what those goals are. Nobody other than you can determine these goals. You need to take the time to figure out exactly what your financial goals are, to take the required steps to reach them. If you do not know specifically what your financial goals are for the current year, next year, and 10 years from now, the solution is simple, just take all the possible steps needed to create them.
Tip 7: Become a well-informed, educated, and responsible decision maker
Although it may be more convenient to hand over all your money matters to somebody else, you will not do this. Part of being financially responsible is having the final say in all decisions about your money. That does not mean that you cannot seek expert advice and get opinions on your finances, but in the end your money is your responsibility, and you are the only one who is going to truly look after your own interests. Spend two hours each week reading articles on personal finance subjects or visit investment consultants who could guide you correctly while answering all your questions.
Tip 8: Save money and invest
Take the money that you have set aside as part of the savings exercise and either save it in bank FDs and PPF or invest it to make it grow and work for you in the future. Spread your savings wisely. Start by clearing portions of your debt. However, ensure that you to take full advantage of the available saving and investment opportunities. Always at all walks in life, ensure that you have an emergency fund to take care of contingencies despite having various insurance covers.
Tip 9: Protect you finances
People generally make sure that their assets are well-protected in case of a disaster or any kind of contingency mostly through insurance covers. Thus, you need to take some time out to ensure that all your assets are properly insured. Perform periodic evaluations every few years or whenever a major life change occurs (marriage or a new addition to the family). Furthermore, make regular comparisons of insurance rates, since it is a competitive business
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.