What is personal finance?
Financial planning in India is essential for a fruitful and financially solid way of life and gives you the edge over the dangers and burdens of low funds on occasions of need. Appropriate personal financial planning permits you to meet your life objectives and satisfy your goals through better roads. It assists you with fostering a confident and restrained standpoint toward your likely future and causes you to take command of how your money functions for you.
Planning how you spend/contribute and use your money-related corpus is fundamental for you to accomplish financial soundness and strength. Seen in the Indian context, there are sure some important things that you should understand for core individual financial planning.
To go ahead and understand more details on personal financial planning we must first understand what personal finance and its impact are on our day-to-day monetary life. Personal finance, as a term, covers the concepts of dealing with your money, saving, and financial planning. It likewise incorporates banking, budgeting, contracts, investments, insurance, planning for retirement, as well as tax planning. One can consider that personal finance comprises the whole business that offers financial types of assistance to people and prompts them about financial and investment open doors.
Aspects of personal finance management and planning
Now that we have understood what personal finance management and planning is, we must understand in detail the aspects that it comprises. This will give you a clearer picture of how to manage your personal finance with ease and in the best possible way.
Income is the money gotten by an individual (people or business) intermittently every day, week after week, month to month, or yearly. Income incorporates money related as well as non-financial sums of remittances and perquisites. All income is taxable under income tax except if explicitly excluded.
Savings is the balance amount that is left in parts after meeting the consumption needs of a person. Individuals who purchase using a credit card and have gradual EMI commitments would have close to nothing or none to save money on a month-to-month premise. Savings help in pooling up funds for a financially stable future.
Investments are resources that permit money to grow in the long run. Investments are made with the goal to profit from the appreciation of value as time passes and are the apex when we talk about personal finance 101. They produce income in two ways for financial backers. Financial backers, first and foremost, can sell it and acquire it from capital additions. Secondly, the investors can acquire from normal income as interest or profits.
Taxes are exacted by governments on their residents to create income for undertaking activities to support the economy of the nation and to increase the expectation of living of its residents. The power of the government to demand taxes in India is gotten from the Constitution of India, which dispenses the ability to collect taxes to the Central and State governments. All taxes imposed inside India should be supported by an accompanying regulation passed by the Parliament or the State Legislature.
Consumer spending is the all-out money spent on definite labour and products by people and families for personal use and happiness in an economy. Contemporary proportions of consumer spending incorporate all confidential acquisition of sturdy merchandise, nondurable products, and services.
Personal financial planning process: A step-by-step guide
If you are also keen to understand personal finance and want to have a personal finance 101 guide that can help you in understanding the process a little better? If yes, then you must know about this step-by-step process that will help you in managing your personal finances like a pro!
Write down your financial goals
You must always know your financial goals before you make a start. Having short medium and long term goals shall surely give you a boost to save, earn and invest money to reach that particular goal.
Must Read: How To Set Investment Goals
Create and stick to a budget
Never underestimate the power of creating a budget for yourself. Having a small budget that defines earnings, savings, expenditure, and savings will make you self-aware of your finances. Hence, making you a better financial decision maker.
Find ways to increase savings
Find out more ways to save. Be it less impulse buying, investing in mutual funds, stocks, shares, SIPs and more, as suited to you. This will help you make money from money and your funds won’t just sit in your wallet.
Pay off any debt
Understand that paying off debts, loans, EMI and even friendly debts from friends and family is important. A – it reduces the financial burden on your shoulders. B- you must pay off debts as it incurs interest that might lose you that extra cash you can save.
Plan for retirement
It might sound like a plan for the future, but let us give you an insight, it is not. It shall be started in the late 20s to have enough funds when you grow old and sit retired in a comfortable rolling chair.
Invest in mutual funds
Investing in Mutual funds has found its base in the market currently. It helps us in growing our money. One must do they own research while investing in mutual funds. Even though they are currently gaining a name on the finance front, the market is subject to financial risk and doing good research and then investing will help you in having a better standing when it comes to personal finance management.
Start an emergency fund
Starting an emergency fund in the form of a zero balance savings account is a great way to stand tall in times of emergencies. Experts say that having your 3 to 6 months of earnings as your emergency fund can help you best survive at the time when an emergency walks in.
Getting insurance is also on the list as it takes off the pressure of spending a hefty amount on health issues if any, getting good health insurance for yourself and your family and staying under protection in times of need.
If you want to have great financial health in the long run, managing your finances shall be the best route you take.
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