04 Mar 2021 · 3 min read

What is Personal Finance ? How to manage your Money?

Personal Finance is whatever that lets you save, earn, or invest money. It can be budgeting, investments, taxes, insurance, savings, etc. (yes, investments and insurance are not the same)

Investments(Fixed Deposits, Stocks, Bonds, Mutual Funds) will help you in good and bad times.

Insurance(Term Insurance, Health Insurance, etc ) are for your worst times.

Key components in personal Finance –

Income- Salaries, Bonuses, Pensions, Dividend, House Rent, etc.

Spending - Rent, Taxes, Food, Entertainment, Travel, payments, etc.

Savings - Physical cash, saving account, etc

Investments - Stocks, Mutual Funds, Bonds, FD, Real estate, etc

Insurance - Life, Health, etc.

It is just all about input from income and output to spending, savings, investments, and insurance according to your goals and necessities.

Why personal finance is important?

Finance has always been a very critical part of human life and has been much more important than ever in today's world. To search for opportunities and stay up to date with the world to be aware of any dangers, one should be financially literate. 

In the current economic and social climate, finance plays a significant role in determining the course and quality of a human being's life. A vital role is played in many ways by your professional development and your family's personal finances.

Savings

You should be planning for the future, whether you're in your 20s and only beginning to learn about personal finances, or are in your 30s and trying to better manage your funds. To assist you in the future, it is necessary to create an emergency savings fund to cover any financial difficulties and a retirement savings plan.

Investments 

Investment is an item that will appreciate in value with times or sometimes keep its original value. It can be done according to your risk factors and time before you need the money.

Low Risk - Fixed Deposits, High Cap Mutual Funds, Debt Mutual Funds, Gold, etc.

High Risk - stocks, Muti cap Mutual Funds, etc.

Low-Risk investments will give you some return every year but with High-risk investments maybe don't move for 5 years but gives 1000% in another 5 years.

ex - Hindustan Unilever Limited - The share was 293 on March 1, 2000, and 300 on March 11, 2011, but from 2011 to 2020 it gave 700% results.

Taxes

Nothing pinches someone more than paying their income tax, as far as personal finance is concerned. It includes an immense amount of money that goes out of one's hand each year. Therefore, when preparing your financial plans, it is important to consider taxes. If prepared carefully, if the contributions are made and claimed correctly, a variety of tax deductions in various parts can be used.

Insurance  

Insurance comes in handy in your worst time but they can save you a tonne of money. Everyone should have a compulsory term and health insurance.

Budgeting

A significant part of handling your personal finances is setting up a budget. A budget lets you keep track of the trends of your expenditures and organize how each month you will invest your money. Start by measuring your monthly total income, then use any app or excel to track all of your expenses. This will help you see where your cash is going, where you can invest, and where each month you can spend a little extra.

Note- It doesn't matter how much you earn if you cannot keep the balance between your expenses and saving.

Personal finance for different ages-

1)Not earning(Getting money from your family) - you can still start with mutual funds(as you can start with just Rs 100) but only after proper research

2) Earning and not married - First and foremost take term and health insurance. Next, clear any loan if you have(student loan, etc). Afterward, you can start investing according to your goals and research.

3) Married- Take health insurance for the entire family and term insurance for the earning member. Next, clear any loan if you have(student, home, or personal loan). Start investing if you haven't for your goals(Medical expenses, children's education, etc). Don't keep all your money in a saving account and fixed deposit.

Few Key Points-

1) Don't keep all your money in Saving accounts(It can be as emergency funds for your 12 months)

2) keep some money in a fixed deposit as it is easily withdrawable

3)Invest according to your goal and risk factor( Never invest in high-risk assets if you need money in the immediate future)

4)Don't invest in stocks if you can't sleep at night(you would see many downs and ups)

5) Before Expenses, Invest your certain money every month

6)Best time to invest is TODAY. 7) don't forget to pay taxes(it also helps to get a loan in the future