The Ultimate Personal finance Tips
The only guidance you need to manage your Personal Finance💰
People often spend their whole life earning more and more money. However, on this journey, they lose sight of what they really want. Money is, no doubt, an essential instrument to fulfill your needs. But believing that only money can buy you happiness is not true, especially in a long run.
When you have a limited life on this planet, you cannot afford to go blind-sided in one direction. Every individual should understand that your happiness is not connected to your buying lots of stuff. You might get a small surge of excitement but it does not translate to long-term happiness.
Your relationship with money should be clear. You don’t want to get into a relationship you don’t understand. Your ability to make decisions that affect the flow of money in your life, should not be distorted. External factors like government policies, inflation, interest rates, business ecosystem, savings, and spending will always influence your money management but they should not sway you away from your goals.
Realizing what are your needs and wants is paramount when you have limited resources in hand. Planning your future should encompass your financial needs in line with your aspirational objectives.
Personal finance need not be complicated like a balance sheet of a company. A clear mindset and a little bit of planning can make you not just rich but also wealthy. So here are some basic but golden mantras of personal finance.
1. First, take control of your life.
Have a roadmap for your goals. What are your expectations, and what lifestyle do you want to have? Suppose you want to buy a house/flat for yourself and your family in the next 6–8 years. 4–4.5 BHK is ideal for you. Finding the current rate of such flats, and adding inflation to them over 6 years can get me a number- the amount of money you will need. It is also recommended that you save 20% of the value as a down payment. This way you can test if you can afford this dream home or not.
It does not matter how big or small your goals are unless you put them in numbers and understand your capacity to achieve them. This will concretize the aspirational part of your life.
Some key points
- Get yourself out of debt as soon as possible. It does not mean you should never take a loan. For a median-income person in an economy, taking home or a car loan is the only viable option to accomplish that dream. However, keep in mind to pay all your debt in the least time. Having debt weakens your consumption-ability of the other things you have planned for.
- Don’t take haste decisions. A commodity may seem perfect to you at the moment, but its utility can decline exponentially over time. It is always recommended to plan ahead. This way, you can take into account as many variable associated with that thing as possible. And thus preventing yourself from getting into something you later regret. Better don’t buy something you don’t need or get into impulsive buying. Secure your future.
2. Get Emergency funds ready in liquid Asset
The idea of having an emergency fund at your disposal is not new. Yet people don’t understand the power of this fund. Typically it is recommended to have 09–12 months of your monthly expenses (that includes all your expenses like Rent, Medical, Commute and Food) in liquid asset like in a saving account from where you can withdraw within 24 hrs. Though this is not a rigid rule, however in this case, the more the better. So why is it so important? Well, so that you don’t deviate from your goals.
Also in case of sudden job loss, very high inflation, accident, medical emergency, or any unforeseen circumstances which require funds, you don’t have to fund from your planned reserves. And taking a loan, as many claim, is still not a click of a button away. These unanticipated situations can have ripple effect on your personal finance. Something is better than nothing.
3. Let your passive income grow
Interest earned from any source plays a significant role in growing your wealth, provided you give enough time. In matters regarding wealth generation, time has a pivot role. Young people in their 20s and 30s should have more appetite to take risk. Invest as early as possible and keep invested for as long as possible. This will show you the power compounding.
There are many financial instruments to invest in, like Bonds, Equity, Commodity, Bank Savings, and Real Estate. Analyze your goals and time frame and start investing in lumpsum or in a Systematic Investment Plan (SIP). The magic of compounding will gradually reflect in your portfolio.
4. Chart out your finance world
It is always beneficial to be conscious about the flow of your money. A little bit of extra effort in understanding your spending habit can save you 20–25% of your money. You can do this by keeping track of your monthly expenses and savings. It may sound tedious, however, there are many apps that can do this job for you. And at the end of the month, you just have to analyze your cash flow and get insight into the psychology of your money flow.
Making more and more digital transaction can help in this process. This way you can track efficiently and effortlessly. It does not mean I am encouraging you to use to credit card more often. You also have an option to use your Debit card or UPI (a phone payment system in India).
It is always rewarding to be numerate in your financial decisions. If you don’t know your numbers, you are taking an uninformed decision. In your day to day small financial decisions, try to be more numerate because this is how you converse with ‘Everything Money’.
Educating about money is as important as getting a college degree. Navigating in life becomes easier and more fun.
Experience gives more happiness than the stuff you buy. A tangible thing will wear and tear over time and cease to exist but an experience is for a lifetime.
