Are you financially stressed? Wonder what happens to your salary each month? You are not alone. There are a lot of individuals who are not aware of how to manage their finances.
Most individuals go through the following issues: they spend more than they should save, they save more than they spend, they take too many loans, and they feel afraid of their financial decisions.
Good news: once you know the fundamentals of money management, it is easy.
In this manual, you will come to know what personal finance is, how to manage money and some basic tips to begin today.
What Is Personal Finance?
Personal finance refers to the management of personal funds. It is the way of spending your money wisely in this way that you can live well today and feel safe tomorrow.
Personal finance entails five primary things:
- Income: The money that you are getting at your work or business.
- Expenses: Money that you use in purchasing something that you need and want.
- Savings: Cash in your wallet.
- Investments: Money that you spend to earn more money.
- Protection: Protection insurance is money insurance
- Protection: Money insurance that keeps you out of trouble.
So, what is the importance of personal finance? It determines whether you will be able to pay your bills, deal with unexpected issues, take vacations, purchase a home, or quit working when you are elderly. Sound financial management leaves you free. Poor financial planning is a stressor.
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Key Areas of Personal Finance
Budgeting
A budget is a plan for your cash. It is making a choice of what to do with your money and spending it after that.
Think of a budget like a map. There is a risk that without a map, you will be lost. With no budget, you lose your money.
Budgeting will make you know how your rupees are spent. It prevents your waste of money on useless things. It helps you save more.
Saving Money
Saving refers to the act of setting aside part of the money as opposed to spending it.
To begin with, you have to have an emergency fund. This is cash that you can use on unexpected expenses such as bills to the hospital, car repairs or loss of your job. Attempt to save some money that would live 3-6 months of basic needs.
You may also save towards other objects:
- Short-term savings: Items you desire but in a period of 1-3 years (new phone, vacation or wedding)
- Long-term savings: To achieve grand objectives that are distant (such as home purchase or education of a child).
Store within a bank savings account a short-term savings that you can access easily. Long money may be invested in order to increase in size.
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Investing
Investment is putting your money somewhere it can increase. Your money earns you and earns you more.
There is a difference between saving and investing. The savings remain secure in the bank, yet the growth is very slow. There is the possibility of a rapid increase in investments, but with a risk.
The beginners: Some of the simplest investment options:
- Retirement accounts: Special accounts that make your money work when you quit a job.
- Index funds: They purchase a large set of stocks of different companies in one group, hence less risk.
- Mutual funds: Experts will run them on your behalf.
- Fixed deposits: These are the risk-free investments where the banks offer you a regular interest.
Debt Management
Debt refers to money that you have borrowed and have to repay.
Some debt is okay. Some debt is bad.
- Good debt is useful in enabling you to earn more or generate wealth. Examples: an education loan that can help you to find a better job, or a mortgage loan that allows you to buy a home that goes up in value.
- Bad debt makes you spend money without benefiting you. Examples: shopping and credit card debts in things that depreciate within a short time.
How to manage debt:
- Give a higher salary than the minimum.
- First, pay off loans with high interest.
- Take no new loans and pay old loans.
- Read all the terms of the loans and sign.
- Borrowing should be done only what you can repay easily.
- Financial Protection & Insurance.
Insurance & Financial Protection
A single bill or accident in a hospital can ruin years of savings. Insurance prevents this.
The simplicity of insurance you must know:
- Health insurance: Covers doctors visits and medicine, and hospital care.
- Life insurance: Gives your money to the family when you die.
- Car insurance: Accidents (by law) on car or bike.
- Home insurance: Covers your home and your property.
- Disability insurance: You receive payment in case you become injured and are unable to work.
When nothing bad occurs, insurance may become the wasted money. But when something is amiss it rescues you.
How Does Personal Finance Work?
These five simple steps to follow:
Step 1: Track Your Money
Record all your expenditures and incomes on a month basis in rupees. Note down with a notebook, phone application or a computer sheet. You should be aware of how you spend the money.
Step 2: Make a Budget
Look at what you tracked. Split up your money into categories:
- 50% in needs (rent, food, electricity, transport)
- 30 percent wants (movies, eating out, shopping)
- 20% for savings and paying loans
This is called the 50/30/20 rule. You are able to calculate these numbers according to your life.
Step 3: Save Regularly
Savings should be treated as a bill to pay. Immediately you receive your salary, transfer money to savings. This should be done before spending on anything.
Step 4: Handle Debt Smartly
Write a list of all your loans and interest rates. Make an additional payment on the loan experiencing the highest interest rate initially. Continue making low payments on other debts. Attack on the second loan on completion of the first one.
Step 5: Start Investing
Once you are in control of your debt, and have emergency savings, then begin to invest. Begin with small amounts. Retirement benefits, to the extent that they are additional money, should be utilized, should you have them available in your company.
Simple Example
- Meet Raj. He earns [?]30,000 every month. He never tracked his money. He began to record all his expenditures. He discovered he was spending [?]6,000 on having food delivered, unspent subscriptions and impulse purchases.
- Raj made a budget. He cut [?]4,000 in waste. Now he saves [?]6,000 monthly. He paid off his credit card debt in 8 months. He created an emergency fund of [?]90,000 in 18 months. He is now spending [?]3,000 a month and no longer worries about money.
Advantages of Personal Finance
A good money manager will receive:
- Mastery of Money: You dictate where your money will go. Your money does not vanish away.
- Less Stress: You are not concerned with bills. You are not afraid of unforeseen costs. You sleep better at night.
- More Savings: Small deposits made on a regular basis will translate into large ones in the long run. One develops riches gradually by gradually.
- Safety Net: When the problems arise (they will), you can easily solve them. No panic, no new debt.
- Confidence: You know about money. You make smart choices. You are no longer confused and scared of finances.
Financial Advice on Personal Financing.
- Start Small: You should not attempt to save thousands of dollars at once. Begin with anything you can–even [?]200, or [?]500 per month. The habit is also important rather than the amount. Big results are achieved through small steps.
- Get Used to It: Set aside something monthly, even just a little. Take one month off and it becomes easy to take the following month off. Consistency is everything.
- Eliminate Making Usual Errors: Do not purchase items to flaunt. You should not overlook your financial position. Do not make important decisions that involve money when you are feeling emotional (angry, sad, too excited).
- Get Basic Tools: Download a money tracking app. Use the mobile app of your bank. Use an easy Excel sheet. Everything is easy with tools.
- Learn Before You Leap: Investing in something you do not know is a bad idea. Watch YouTube video, read easy to read articles, or consult a knowing person. Always do not put money on something that you never receive.
- Automate Everything: Have automatic savings transfers. Automatize payment of bills. This eliminates the use of will power and memory.
Mistakes to Avoid in Personal Financial Planning.
No Budget: Not having a budget will ensure that you spend too much. Any kind of budget is still good.
- None of the Emergency Fund: A lot of individuals spend money or even settle small debts and leave their emergency funds at zero. The next crisis imposes new costly debt.
- Credit Card Trap: Credit cards seem like something free but nothing. Interest rates can keep you in years of debts. Otherwise, you should only use credit cards when you are in a position to pay the full amount after every month.
- Waiting to Invest: There are those who wait till the right time or till they have enough money. It is better to start with little at the beginning. Even 1,000 every month invested in 20 years will be lakhs.
- Lifestyle Inflation: As people increase their income, they increase their expenditure. They upgrade everything. Their savings stay the same. Increase savings then lifestyle when you receive a raise.
- Ignorance of the Insurance: Youths tend to forget about insurance thinking that nothing can go wrong with me. Mishaps and ailments do not give warnings.
Finance Resources PFT.
For Budgeting:
- Google Sheets (free templates can be used).
- Money Manager app
- Wallet app
- Simple notebook and pen
For Tracking Expenses:
- Paytm or PhonePe (shows transaction history)
- Your bank’s app
- ET Money app
- Spendee app
For Learning:
- Money management channels on Youtube.
- Indian personal finance site- Freefincal.
- The financial education section of your bank.
- Newspaper money articles.
For Investing:
- Mutual fund applications (Groww, Zerodha).
- Post office plans (absolutely risk-averse)
- Your bank’s fixed deposits
- Contact your bank relationship manager
Frequently Asked Questions
Q: What is simple personal finance?
Ans: Personal finance refers to managing your money. It is about making money, spending very wisely, saving it to use tomorrow and insuring yourself against money catastrophes.
Q: What do I need to begin to do with money?
Ans: Begin by keeping records of all your expenditures in a month. See where money goes. Make a simple budget. Open a savings account which will be independent of your salary account. Start saving even [?]500 monthly. Learn more as you go.
Q: What is the amount of money to be saved monthly?
Ans: Try to save 20% of what you earn. If you earn [?]30,000, save [?]6,000. When this is a bit difficult now work with 10 per cent or even 5%. The amount is not as significant as starting. Savings: Spend less and learn more.
Q: Is it risky to be a first time investor?
Ans: There is no risk-free investment. Non-investment is as well risky–inflation causes your money to lose value as time goes by. Novices must begin with safe funds such as fixed deposits or index funds. Do not invest in money that you will require in the nearest future. Never put money in things you are not familiar with. Learn first, invest second.
Q: What if I have debt? Which should I save or pay debt on first?
Ans: Both but emphasize on debt with high interest (such as credit cards). Contribute the least on all debts. Additional capital to the most interest debt. Savings at least [?]1,000 a month as an emergency fund – otherwise, a new emergency will produce a new debt.
Q: Is it possible to do personal financial budgeting on low salary?
Ans: Yes. Personal finance is practiced on any level of income. Learn to spend less than you make even a [?]500 less. Avoid debt. First of all, build some emergency capital. Savings increase with increase in income.
Conclusion
Personal finance is not a complex one. Not about making money and making it quick. It is all about spending your money in a good way to ensure you live comfortably.
Keep in mind the following:
- Make a budget and follow it
- Save money every month
- First build an emergency fund.
- Clear high-cost debt in a short time.
- Insure yourself on basic insurance.
- Get informed on how to invest but start with little.
- Stay consistent
Yesterday was the most appropriate day to have done it. The second-best time is today. Waiting to get the right time is not the right thing to do. Don’t wait to earn more. Start now with what you have.
Take one small action today. Write down your spending. Make a simple budget. Open a savings account. Save [?]500 this month.
It is what you do today that will make your future better. Start simple. Stay steady. Money stress will be alleviated. Your savings will grow. You are going to feel safe and sure.
Keep in mind: all wealthy individuals have begun with their initial saved rupee. Start yours today.
