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Personal Finance is just a way how to plan effectively and manage your personal cash and its utilization like your income, spending, where to save and invest and if possible attract maximum returns out of the investment. Before I start my post on the topic I will quote one popular statement by American bestselling author Dave Ramsey that

Personal finance is 80% behaviour and 20% head knowledge

With regards to Personal Finances, one big mistake which generally 90-95% of people commit while making an allocation with their hard-earned money is that

                     “ Don’t mix Finance and Emotions

in simple words, it refers to only planning your money by keeping emotions aside. It is a bit tough but it is true if you really want to make something in return for your money.

what is personal finance?
What is Personal Finance?

What is Personal Finance

Personal Finance in general terms is not more than simply managing your income or money you are earning and just keeping track of that. But in actuality, it is a broad term under which many things get covered, which I will discuss in my upcoming series of blogs. Overall, it is about planning your Income, and where to spend/invest that money earned by income. This term also includes the financial decisions which you have to take with respect to your future or retirement.

Importance of Personal Finance

         We were never taught about this very crucial part of our finances that is how to plan our Personal Finances. And if at all, some among us are doing it, we are doing it for the short term rather than going for long-term planning. Reasons for doing the short-term planning may be varying on an individual basis, but what do we receive from this activity?… we are left with very minimal or no amount in the savings after some days of receiving income in our accounts. And what may be the reason for it?

Have you ever given a thought to it… if Yes, then wonderful as you are pretty much closer to managing your finances with just slight guidance. But if your answer is No, then you must give a thought to it now else it becomes too late. Let me try to help you through this series of blogs to make you understand how to learn the finances better for your future. Do you know why most financial planning fails?…

Piggy Bank is the Primary tool for Personal Finance

Because we don’t have efficient and workable cash flow systems or if at all we are having then it is not well defined. The key to finding the money to save and invest is to have good cash flow systems. The cash flow system sounds a bit technical, but in reality, it is just the difference between money deposited in the bank account and money that remained after some time in your bank accounts. That means, it simply reflects the unnecessary expenditure occurred by you which must be tracked and controlled to achieve a better return.

So, Personal Finance is a simple way to divide your money into spending and saving and to generate a method to manage the money automatically. Personal finance has five main segments Income, Spending, Saving, Investing, and Protection from unseen circumstances. Everybody has some money to save and how much he or she can save totally depends on the individual’s financial position. So you should leave this thought of not having enough money to save or invest.

How Personal Finance works

As we have already discussed Personal Finance and its importance, we should now look for the mechanism through which this method can work for us. There are some well-described and widely popular rules which must be followed by each one of us to keep our finances in our hands.

Thumb Rule of Financial Planning

This rule asks us to take paper and pencil and start writing about the total income we use to get on a monthly or on regular basis. And if you are an individual who gets income on fixed intervals 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 salary into three columns of income, spending and saving. If you can do it then I must assure you that, you are going to be in better control of your finances soon. Because it will clearly tell you about something which is taking your money without your knowledge and that is the wastage or spending unnecessarily.

     If it is completed, then you have to relook where the money is going at regular intervals like Dining out, Marketing, Movies, etc. We should with a balanced approach and what it means to be a balanced approach is

  • Spending must not cross by 40-45% of the salary in hand.
  • Fixed expenses like bills, EMI, and Loan payout must be within 30-35% of the salary.
  • Finally, the rest 15-20% of your salary must go for Saving rather I will recommend Investment purposes.

Second Rule for Finacial Planning

Due to the fast and hectic life of present times, the health status of human beings is taking a back seat. Presently, average life expectancy is decreased because of various medical diseases and other health-related issues. So, we must be ready to face any such unexpected contingency in our lifecycle at any point in time.

And mind it, the healthcare system is quite costly nowadays and we must have sufficient money in our savings ready to meet such contingencies. So, it is highly recommended that we must maintain a reserve fund that must be equal to or more than our 3 monthly salaries. It can be utilized to meet any unforeseen emergencies like medical emergencies or sudden death of any near and dear ones. The reserve fund is essential so that we don’t have to spend the money out of our savings for these unexpected emergencies.

Protection of life

By protection, I simply mean that we must have a backup for any medical emergency in life so that our savings should not be touched at any cost. If we are getting the same protection cover from any external agencies by paying a minimal amount compared to that emergency then we should purchase it. But unfortunately, we don’t give due attention to this topic and then realize it in later stages of life.

So please be aware of the protection of your life for your children’s sake, if not for your life. I am talking about a thing that everybody knows but ignores and the reason for ignorance may be anything. Here, I am talking about Life insurance which we all must have.

insurance and its importance
insurance and its importance


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. The company provides this financial coverage on some specific terms in return for the payment which a consumer pays to that company. Insurance must be an integral part of an individual’s financial budgeting because it can serve as a backup in the event of a loss so that you don’t have to spend your savings part.

Mainly two types of Insurance available in the market are General Insurance & Life Insurance. If you are a salaried person and insured by the organization, then also I will recommend you purchase additional private insurance for 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?

It is the most important part of your income which you must look after minutely. Saving is the money left behind in your account after paying all your dues like bills and other charges of the month. Everyone must have a habit of saving something which can be used in the future when the need arises. This exercise of tracking your saving continuously will surely downsize unnecessary spending. The same saving can be used in the future when the need arises. Saving will surely help us to plan for higher education for children and retirement or you can say it gives financial freedom.

There are various ways available in the market by which we can save money like saving in a bank account and purchasing some jewellery, and the oldest one is Piggy Bank at home. But you must give a thought that just saving the money is not enough as your savings can not beat the inflation rate. That means savings will surely act as an added advantage but they can not give you returns, so you must focus on Investment and not only on saving.

My favourite… Investment

As we discussed above, saving can not beat inflation and so we must look for an investment that means savings must be invested somewhere. People generally prevent themselves from investing by making excuses like Not having enough money at present and the fear of losing money on the investment tools. But let me remind you that if you are not investing that means inflation will eat all your savings within a short period of time.

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 that we must keep in mind while investing, but those can be well-taken care of easily if we do a brief research about the system in which we are going to invest.

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 are: 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 tool in detail like its types of it, how to invest, where to invest and the pros & cons of a particular tool in my upcoming blogs.

At last what a simple thought

What eats your money = Purchases made without thought + Loans you can’t repay + Greed.

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