Throughout our life, we often find ourselves bouncing between saving money and ‘you only live once’. But sooner or later, reality hits hard and makes us realize that there is no escaping from a well-organized personal finance plan that can support us till the end.
With the future being as unpredictable as it is, mindful money management that takes risks and future life events into account has become an integral part of individual financial planning and wellbeing. What’s more, it allows you to sip your morning tea without worrying about how to fund your needs and desires every day!
There are 7 basic but key aspects to consider while planning your finances –
1. Expense
The golden rule for financial planning for beginners is to first save a certain percentage of your income, and then use the remaining sum for your expenses. It may sound tough, but when you see your savings growing bigger, you will realize how well this rule works for your personal finance. You can use the saved sum as an emergency corpus or fulfil any other financial goal.
2. Budget
Once you have an idea of how much you can spend, try to plan your monthly expenses so that you don’t end up adding debts to your account. Prioritizing your expenses may help. For instance, you should be prepared to let certain luxury splurges take a back seat when the time is not right.
To create a budget for yourself, start calculating and keeping track of your routine expenditures like rent, electricity, groceries, commute, medicines, laundry, etc.
3. Insurance
When it comes to financial planning for a salaried employee, health insurance is usually covered in the company benefits. But we have all had our learning curve with the COVID-19 pandemic – jobs were lost and medical bills were paid by breaking the bank.
So, it is always better to first safeguard what you already have, that is, your health and family, and then think about growing your wealth. To avoid borrowing money or selling your investments, buy health and life insurance according to your needs. Given that some people are experiencing lasting health issues from COVID-19, it may be in your best interest to learn about long term disability insurance as well.
4. Investment
The first thing to note here is that investment is not synonymous with saving. While saving, we put a sum of money aside whereas while investing, we purchase assets like mutual funds and stocks that are expected to give us high returns or make our money grow in future.
Turn your dreams into financial goals and set a timeframe around them. Then pick a mutual fund that matches your risk appetite and timeframe. For example, if your goal is to buy a bike in a year, you can start investing in stocks that give high returns.
5. Tax
With the right kind of purchases/investments, you can reduce your taxable income to a certain extent which will eventually help you save a lot of money every year. Some exemptions and deductions to look out for are PPF, ELSS, 5-year tax-saving FD, life insurance premium, health insurance premium, etc.
So, even though we didn’t have a ‘how to plan and pay your taxes’ subject in school, it is time to buck up and get a grip on the same if you want to reduce your overall tax liability. There are numerous resources online, and even YouTube tutorials that can teach you how to file a tax return online, manually with pen-and-paper, or with a certified tax preparation expert.
6. Debt
The first step towards efficient debt management is knowing your debts and having a solid plan in place to eliminate them before any of your critical life goals get side-lined.
Next, you should strategize your debt payment. According to your income capacity, put a timeline to pay off all debts. In case you have a lot of debt burden, consider a good debt consolidation loan that allows you to pay off all debts quickly in a single payment.
Care should be taken to avoid falling into debt traps.
7. Retirement
Finally, make sure that you have sufficient savings to support your basic needs in the twilight years. Building a retirement corpus is a good way to compensate for the loss of income and increased life expectancy. And considering inflation rates, the earlier you start saving for your retirement, the better.
The second way to plan for retirement is by generating income from your assets during your retirement. Making the right investments can ensure that you have a secure income flow for as long as you live.
Nobody can predict the future but it helps to be prepared for it. Therefore, knowing all the important aspects of personal financial planning and working on it can ensure that money doesn’t get in the way of your dreams, ambitions, and peace as you live the life you deserve.
Author Bio:
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, and personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at shiv@freopay.com.
