Developing some key personal finance habits will help you to become more financially efficient.
As a term, personal finance refers to the process of managing money that includes saving and investing finances for an individual or a family. It encompasses budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and estate planning. It also refers to the entire industry that provides financial services to individuals and households and advises them about financial and investment opportunities.
Managing money requires a lot of planning and patience. While planning for life’s future, its important to be disciplined as much as possible and of course start saving as early as possible. Individuals usually start earning from their early 20s and continue the same often till early 60s. While its probably the best to start saving right from the day one starts earning, but people in their 20s tend to be carefree and often end up spending more than they earn. This often leads to a situation when they are forced to borrow money either from closed ones or avail personal loans from several platforms. Unfortunately, they don’t realise the fact that such activities can often throw them under the vicious cycle of debt burden.
However, whether young or old, its important for all to follow certain personal finance rules so as to become financially disciplined.
The money you saved will help you meet future financial obligations. Therefore, it is imperative to save a portion of your income by following a disciplined savings habit.
Developing some key personal finance habits will help you to become more financially efficient, take control of your finances, and stay out of debt. It facilitates you towards building more wealth and achieving stable financial future.
Get an estimate of your monthly expenses, allocate a budget and try to stick on it. When it comes to preparing a budget, you can list your monthly expenses that help to keep track of all items purchased and your spending pattern. By tracking your expenses, you can check if there is over spending and try to avoid unnecessary expenses.
As soon as you start earning, you should make a habit of regular savings and invest it to attain financial goals. First, you need to explore various investment avenues which can help to grow your money.
You should invest in insurance (term plan) to ensure you are prepared enough to meet life’s uncertainties. Getting a comprehensive life and health cover help you to feel secured against uncertainties of life. Upon insuring your home, car and bike, your assets will remain protected against any mishap.
Focus investing in growth-oriented investments that will help to build a corpus. While risk-free investment tools like EPF and PPF make for a good investment bet, do opt for mutual funds (SIPs) or equity investments for wealth creation. Diversifying your portfolio is essential.
Impulsive buying is an unplanned decision to buy a product or service without planning or absence of proper research. It is an irrational buying which usually disrupt your savings efforts. You must be wary of impulse purchases, instead you must plan well and do your research before buying. You must think upon your purchase and consider whether you really need to buy it.
Paying credit card bills before the scheduled date help you build and maintain good credit score. It also helps you avoid late fees. It is wise to pay the bill as soon as you receive it. If you think that you may forget to pay the bills, it’s better to opt for auto pay and you don’t need to remember the date for paying bills.
Also, don’t ever pay a bill before checking it thoroughly, as it may include charge or fee which is not valid. So, study your bill to ascertain inaccuracies and ask the concerned banking institution to rectify it before paying the bill. It reduces the chances of overpaying the bills.
Emergencies may occur at any time and it is essential to stay financially prepared. Everyone must maintain backup fund that will help to fight against emergencies. It is advisable to invest in liquid schemes such as bank deposits to get a corpus during emergency. Or even having ready cash in your savings bank account is also a good idea, as you can have instant access to it during emergencies.
You need to be practical while investing your money. Do not ever invest in get-rich-quick schemes, as it doesn’t work at all in the real life. Investing prudently will help to grow your money and achieve financial goals as well.
Maintaining financial discipline is of utmost importance. It is not only aimed at supporting you during emergencies and have secured life post retirement, financial discipline can always ensure that you lead a much more fulfilling life.
The writer is the Founder and CEO, ComparePolicy.com