How to go for Personal Finance
Personal Finance is just a way how to plan effectively and manage your personal cash and its utilization like your income, its spending, where to save and invest and if possible attract maximum returns out of the investment.
Before I start my post on the topic of I will quote one popular statement by American bestselling author Dave Ramsey that
“Personal finance is 80% behavior and 20% head knowledge “
In Personal Finance, let me tell you one big mistake which generally 90-95% people commit when making an allocation with their hard-earned money and what is that
“ Don’t mix Finance and Emotions”
in simple words, it refers to plan your money by keeping emotions aside, which is a bit tough but it is so if you really wanna make something in return from your money.
Personal Finance in a lemon term is not more than simply managing your income or money you are earning and just keeping track of that. So it is an umbrella term under which many things get covered up which I will discuss in a series of blogs. Overall, it is planning about your Income, where to spend/invest, and any financial decision you take with respect to your future or retirement.
We are habitual to a bit of planning about our income we used to get on a regular basis, but that planning is generally of short term and so we end up with no or very minimal balance in accounts after a period of time. So what may be the reason for it…
Have you ever given a thought to it… Yes, then wonderful you are pretty much closer to manage your finances with just slight guidance. But if your answer is No, then my friend you must give a thought to it now else it becomes too late.
Let me try to help you in achieving some of the insight about managing your own money. You know why most financial planning fails?…
Because we don’t have efficient and workable cash flow systems or if at all we are having then it is not well defined or rough system. The key to finding the money to save and invest is to have good cash flow systems. And cash flow system sounds a bit technical, but in reality, it is just the difference of money deposited in a bank account and left out after a certain period of time i.e where your hard-earned money goes?
So it is a simple way to divide your money into spending and saving and to generate a method to manage the money automatically. So personal finance has five main domains like Income, Spending, Saving, Investing, and Protection.
Everybody has some money to save more or less depends on the individual’s financial position but surely has. So drop a thought that you are having money sufficient to think of for personal finance or not. So let’s try to go in detail and be with me…
Ways to achieve Personal Finance
Thumb Rule is to write in detail
This rule refers to take paper and pencil and start writing about the total income you are going to get on a monthly or on a regular basis. And if you are an individual who gets income on fixed interval i.e as if you are a salaried person then the best time to think and do this exercise is 5-7 days prior to the date you are going to get your salary in hand.
Now, simply divide your income into three columns as of income, spending and saving and if you can do it then I must assure you that, you are going to be in better control of your finances soon, as it will reflect something which is draining your money and that is …wastage or spending unnecessarily.
It’s done, then you have to relook where the money is going at regular intervals like Eating out, Marketing, Movies, etc and go for a balanced approach and what does it mean to be a balanced approach is…
👉Spending must not cross by 40-45% of your salary
👉Fixed expenses like bills, EMI, Loan payout must be within 30-35% of salary
👉Finally, rest 15-20% of your salary must go for Saving rather I will recommend Investment purposes.
✋✋Second Rule for Personal Finance
Always maintain a reserve fund that must be equal to or more than your 3 months salary in cash so that it can be utilized to meet any unforeseen emergencies like medical emergencies or sudden death of any near and dear ones. Reserve fund is very much essential to maintain so that don’t have to dip into your savings for emergencies.
✋✋What about Insurance
By protection, I simply mean that everybody must have at least backup for any emergency in life so that one’s saving should not be touched at any cost. And if we get the same cover from any external agencies with a very minimal amount paid to them as premium… it’s great no… it is, but unfortunately, we didn’t give even minor attention to this topic and then realize it in later stages of life. So please don’t be like that and I am not talking about a thing which everybody knows but ignores and reason for ignorance may be given in anyway… yes, I am talking about insurance cover only.
It is like an agreement between the company and the consumer in which the company provides a surety of reimbursement for loss, damage, illness or even death on some specific terms in return for the payment of a specified price the consumer pays to that company. Insurance must be an integral part of an individual’s finance bucket as it can serve as back up in the event of a loss so that he/she doesn’t have to dive into saving part.
Mainly two types of Insurance available in the market which are General Insurance & Life Insurance. if you are a salaried person and insured undercover by the organization then also I will recommend you to go for another private insurance for adding up of security. The insurance industry is regularised and under the close watch of IRDAI, and you can visit the official website of IRDAI and scroll through mandatory instructions, conditions, approved companies, etc with respect to Companies providing Insurance services in India.
👉👉What about saving part
It is a part of your income which you must look after minutely. Saving is the money left behind into your account after paying all your bills of the month. Everyone must have a habit of saving something which can be used in the future when the need arises… And why it is so
One simply downsizes the unnecessary spending. Second, the same saving can be used in the future when the need arises, Third, it surely helps to plan for higher education to child and retirement or you can say it gives financial freedom. There are various tools available in the market by which one can save money and some of them I can recall are saving a bank account, purchasing some jewelry, and oldest yet best one is Piggy Bank at home.
But u must give a thought that just saving the money is not enough as your savings can not simply beat inflation rate so that means savings can surely act as a cushion but can not give you returns, so you must turn for another topic and that is Investment.
👉👉my favorite… Investment
As we discussed above that saving can not beat inflation and so we must look for an investment that means savings must be invested somewhere so that money generates money. People generally crib from investing making some lame excuses like Not having enough money at present, the factor of safety, etc, but let me remind you once again that if you are not investing that means inflation will be taken care of by you only.
So start investing in life as early as possible because investment does not specify age criteria and the beautiful part is that you can now start investing even from a very small amount. Yes, there are some issues of safety one must keep in mind while investing but that can be overlooked easily if you do a brief research about the system in which you are going to invest .. that’s all.
There are a lot of options available in the market where one can easily invest hard-earned money and some tools where you can think of investing:
Fixed Deposits (FD), Recurring Deposit (RD), National Pension Scheme (NPS), Public Provident Fund (PPF), Senior Citizens’ Saving Scheme (SCSS), Direct Stock Marketing, Sukanya Smridhi Yojna (SSY), Bonds, Mutual Funds ( Equity), Mutual Funds (Debt)
I will discuss each option in detail like the types and pros & cons of a particular tool in my upcoming blogs.
At last what a simple thought
What eats your money + Purchase without thought + Loans you can’t repay and Greed.