About Personal Finance
Personal finance is a term used when a person is able to manage their money by both the ways of saving the money and investing as well. The term often refers to the complete industry managing the funds which include the professionals who provide the services to individuals and households and tell the people how to manage the financials and investment opportunities the person has for their money to grow.
Planning the personal finances is about meeting the goals, maybe it for any of the reasons which include planning for retirement or for the child’s school fees. The managing of finances depends upon the income, expense, living requirements, and individual’s habits as well. To get the most of personal finances, a person should have a basic knowledge of finances.
Personal Finance Management
There are certain financial strategies a person can follow which are –
- Division of Budget – A person knows, the way he spends his money and his monthly expenses, so the person must manage the funds in such a way that the money could be saved if any big expense does not arise.
- Create an Emergency Fund – A person can create a specific amount that he/she saves, which could be used in any emergency that arises in the future. The money should b saved regularly for the fund, so that money could be saved.
- Limited Debt – A person must have a limit on spending. A person must not spend more than what the person earns. If the spending is more regular than the income, then one or the other way the debt would keep growing, unless the spending is put to the limit.
- Credit Cards usage – A person must use his cards wisely. As credit cards are used in making big purchases or a large amount to be paid but also help people in improving their credit score. A credit score of a person helps in getting the loans easily. They are also helpful in tracking the spending of a person which indirectly helps in maintaining the budget of a person. A person can also use a debit card to make purchases, which the person can spend directly from his account.
- Monitoring Credit Score – A person must manage his credit score. A good credit score is helpful for any person, which the person could manage by paying his bills on time. The general credit score monitoring could be done by the way of using credit cards. The credit cards bill paid on time helps the person in getting/maintaining a good credit score. The credit rating in India is given by CIBIL. The preferred score of getting a loan from a bank easily is 750+. One of the ways to ruin the credit ratings is just by paying the loans late or missing the payments.
- Pay Off Student Loans – A student must pay off his student loan as soon as possible after getting the job. A person having a high-interest rate, paying the principal money could be faster. On repayment, if the student loan is repaid slowly then the person can invest the money and earn future profits. There are reductions in tax payments for a person in paying off loans.
- Plan and Save for retirement – A person after starting earning starts saving for their future. The future includes any of the events which include marriage, the study of the child but the important thing is the retirement plans. A person does not know what retirement holds. Many children do not keep their parents with themselves, as the trend of the nuclear family is growing in our country as well. The people tend to save for their future as well.
- Start an Investment Strategy – A person after the beginning of his earnings must divide for the investments that can be made by him. The investment can be made in a risky stock for once, and then the profits made by it can be used in making the low-risk investments that are helpful for the future.
- Give yourself a break – A person from time to time must go for a vacation or an occasional party from time to time, after which the person can enjoy the fruits of his labor. With a taste of personal labor, a person can know what independence feels like and can get to know how hard the person works.
Personal Finance Planning
A person should know the financial limits – The key to getting the finances right is working on the track and does not require learning new skills. The people must understand the principles of personal finance on which a person can contribute to its success, business, and personal money management as well. The three key principles are –
- Prioritization – A person must be able to look at the finances, keep the check of the money flowing in the business, and must be sure about the effort which has been put in sorting the priorities.
- Assessment – It is a key that helps the professionals from running on fumes. Ambitious people always have the ideas of hitting big, where the plan is to go for a business idea or an investment idea.
- Restraint – A person must know when to restrain themselves from spending more. A financial planner sits down from time and again with the successful people who still manage to spend more than the money they make. Earning Rs. 2,00,000 and spending Rs. 3,00,000 won’t make it good.
There are several things in managing personal finance that the classes are not going to teach a person which includes Discipline, sense of timing, and emotional detachment.