Personal finance encompasses every little decision and action taken with your money like managing your money, saving and investing. Personal Finance basics define the first step to be taken to improve personal finance and how to take this step. Personal Finance covers all the basic terms like insurance, investments, retirement planning, budgeting, banking and tax planning.
Why go for Personal Finance Basics
Personal finance is a subject which needs a lot of discussion in society but to date, it is a bit ignored. People hesitate to talk about personal finance because they don’t think it is that important to talk about this subject. The reason is simple that everybody knows how to use or manage their hard-earned money. You must have a habit of tracking your income, expenditure, savings, and usage which will make you financially free. This blog over Personal Finance basics is for you to uncover the basics of personal finance to make it work for you.
If we go into some more depth we can easily replace the saving part with that of investment by which I simply mean that your saving should earn for you rather than sitting idle in the bank.
Two Personal Finance Basics
To begin the topic of Personal Finance Basics, we must first understand the importance of investment for our finances. To enjoy the fruit of budgeting at a later stage in your life two things you must focus upon.
- Investment or Saving.
- How much to Invest
Why Investment is neccessary:
In general, when somebody asked you about your investment or savings, you tend to make excuses like it is just the start of your career or first enjoys life initially. But I must assure you that your timing of investment is the biggest factor in your wealth generation and you must start investing as early as possible. The more delay you make in starting an Investment, the more you lose in the long term.
Many people simply waste their precious time by thinking about the best options to invest in. While doing so they get confused and in turn, got distracted from the aim of starting to invest early. People generally miss the golden opportunity and the opportunity is starting years of life when investment would have created wonders for them.
Starting an Investment in the early days of life have maximum effect and it carries the maximum chunk out of the total asset generated. But it requires the right choice, dedicated time, and hard work to create wonders for you. Early investment is the best way to make sure that you are not burdened later in your life.
How much you should invest
The amount of investment here simply means how much money you can dedicate towards investment. Many people think that starting an investment with a small amount will not be of much use and will not generate any wealth for them. But I must assure you that the early investment you start the more you generate returns. In the starting years, you have less responsibility and less expenditure so you can save more. You can start an investment with a basic minimum of 500 or more, but you must start that is the golden yardstick.
The Compounding Effect
Personal finance basics are incomplete without this concept and we can not neglect the wonders of it for us in long term. A little amount of investment can contribute maximum to your wealth over a long time provided you started timely. The investments made in the early years of your life will have the effect of compounding on your returns. As per this Compounding effect, your investments made in an asset will generate returns for you. The returns generated by your assets will be so great that your contributions will look small in comparison.
Albert Einstein is credited with the statement compounding is the eighth wonder of the world, He who understands it earns it… he who doesn’t… pays it
Because there are two ways by which there is an accumulation in your wealth. The first one will be your contribution which you dedicated to the investment part. The second part will be the returns generated on the wealth you contributed. Investments made in the early years by you will give a relaxed and stress-free life to you in the future. Because investment in the starting years will pave for a major chunk in your net asset in future.
The effect of investments made at the starting at your total assets is sizeable and if at all you reduced or even stopped the investment in the last years of tenure, then also there will be no major difference in outcome at the end. So in a nutshell, it is advisable to start investing today because it is better to save little now than save the maximum in the future. Investments made in the present will have a compounding growth in the future which will generate you a good asset.
But it creates difficulty for a person who recently started his employment where he can save something for investments. He will have enough reasons to get excused from the investment or saving. But to handle all these you must go through my other blog on personal finance.
Simple tips to save Money
Now how to save or take out something for saving to make it as your first investment, you can go like:
⇔ Manage your unnecessary expenses.
⇔ List out all your income and expenses and their sources, by which you will come to know which spending you could have easily averted.
⇔ Don’t buy things which you cannot afford.
⇔ Choose the vehicle after due consideration and if it ok go for a two-wheeler till the time there is no dire need for a four-wheeler.
⇔ Make a habit of walking and don’t be a slave of auto or taxi for a short distance
⇔ Do prepare a list of all the items of shopping and check for discounts and if possible join membership for the same it will provide you with attractive discounts.
⇔ Use plastic money i.e Credit cards or Debit cards wisely.
⇔ There is a difference between Credit and Debit cards that you should exploit and use in your favour.
⇔ You can plan your vacation trips in off seasons when there is no competition.
⇔ While planning your trip you can check out tips on how to book cheap hotels.
These are some tips just to help you manage your extra and avoidable expenditures easily and there are many more ways you can think upon depending on lifestyles you follow.