Many of us may be concerned about the future and how it may affect our financial condition during difficult economic circumstances. This is why it is more vital than ever to consider developing a long-term strategy for your money and protecting your investments.
While this may appear daunting, we’re here to assist—some numerous tips and tactics can help you reduce the personal financial planning process down into digestible, bite-sized bits. Learn how to design a savings strategy to help you achieve your financial objectives at each stage of your life.
What Is Personal Finance?
Personal finance refers to money management, as well as saving and investing. Budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and estate preparation are all included. The word frequently refers to the entire industry that provides financial services to individuals and households and financial and investment advice.
Personal finance is concerned with achieving personal financial objectives, such as having enough money for short-term financial demands, budgeting for retirement, or investing for your child’s college education. Everything is determined by your income, spending, saving, investing, and personal safety (insurance and estate planning).
How many financial surprises have you had in your life; unexpected car troubles, medical expenditures, school fees, a dream vacation? Is it better to bring food to work or to eat at the restaurant across the street? Are you prone to making impulse purchases? Do you find yourself in a financial bind before your next payday? We have all been victims of the repercussions of poor personal financial planning, but it is never too late to reconsider and mold the future into what we want it to be.
Follow me on this simple and fascinating trip to discover why personal financial planning is important.
- Establishing Financial Goals
If you ever meet with a financial advisor, they will start by asking about your financial goals. Most people spend more time planning their vacation than their financial goals; having a financial plan will make it easier to establish your goals.
- Income Management
A set plan can help you manage your income more successfully. This can be accomplished simply by making a budget, so you don’t have to panic or wonder if you have enough money. Simply said, budget preparation and monitoring will assist you in prioritizing your spending, identifying needless expenditures, adapting fast as your financial situation changes, and achieving your financial goals.
- Measuring progress on your goals
Once you’ve established a financial plan, you may set quantifiable goals, such as depositing a particular amount of money to a savings account every month or repaying debt over time. A personal financial plan can help you keep the discipline to stay within specified targets and achieve your goals.
- Financial Awareness
A financial plan allows you to better understand your finances by setting measurable financial goals and the effects of your actions. Financial planning can provide a new perspective on budgeting and techniques to improve control over one’s financial lifestyle.
- Assets vs Liabilities Management
Often, one finds themselves in a quandary, unsure of what one wants to achieve and how best to do it. Because an asset usually comes with liabilities attached, it is critical to identify the true worth of an asset. A financial plan will advise you on the best way to settle your liabilities while also allowing you to own assets that will not become a burden in the future.
Many people believe that savings are a cushion for a rainy day. However, unexpected financial upheavals can still put you off track if your savings are insufficient. It is usually a good idea to have some liquid investments on hand that may be used in an emergency.
Overall, it is recommended that an individual consult with a competent financial advisor for adequate help in developing a financial plan and moving toward reaching her financial goals. Creating a financial plan takes time and may force you to confront certain financial truths you have been avoiding, but it is well worth it in the end. Once your plan is finished, you can start taking precise steps to ensure that your finances are in order and functioning smoothly, and you can live a more serene life with fewer surprises.
How To Make a Budget in 6 Simple Steps
To create a budget that works for you and allows you to live a comfortable and happy life, you must determine your current spending, how much you can afford, and your priorities.
Find a good template to fill in your expenses and income numbers before creating a budget.
Step 1 Financial Paperwork
Before you begin, gather up all your financial statements, including:
- Bank statements
- Investment accounts
- Recent utility bills
- W-2s and paystubs
- Credit card bills
- Receipts from the last three months
- Mortgage or auto loan statements
You want to have access to all of your income and expense information. Creating a monthly average is one of the most important aspects of budgeting. The more data you can gather, the better. Read; How to improve your digital front door with WebOps
Step 2 Calculate Your Income
How much money can you expect to make each month? If you receive a regular paycheck with taxes deducted automatically, using the net income (or take-home pay) amount is acceptable. Include any outside sources of income, such as child support or Social Security, if you are self-employed. Make a monthly record of your total income.
Step 3 Make a list of your monthly expenses.
Make a list of all the expenses you expect to incur during the month. This list may include:
- Mortgage payments or rent
- Car payments
- Personal care
- Eating out
- Child care etc
Step 4 Determine Fixed and Variable Expenses
Fixed expenses are those you must pay the same amount each time. Including mortgage or rent payments, car payments, monthly internet service, trash pickup, and regular child care. Include any standard credit card payments and any other essential spending consistent from month to month.
Include savings and debt repayment as fixed expenses if you plan to save a set amount or pay off a monthly debt.
Step 5 Total Your Monthly Income and Expenses
You’re on the right track if your income exceeds your expenses. This extra cash allows you to allocate funds to other areas of your budget, such as retirement savings or debt repayment. If your expenses exceed your income, you are overspending and should make some changes.
Step 6 Make Expense Adjustments
If your expenses exceed your income, look for areas where you can cut your variable expenses. Look for areas where you can cut back on spending, such as eating out less or eliminate a category, such as canceling your gym membership.
How to Build an Emergency Fund
Extra cash for emergencies is a critical component of your overall financial well-being, with three to six months of expenses being a common recommendation. For many people, however, that can be an intimidating number, discouraging even the most well-intentioned saver.
But don’t give up before you even begin! Saving is primarily a psychological game that you can win. Even if you’re starting from scratch, putting money aside regularly — even in small amounts — will eventually get you to your goal. It only takes time and a little self-control.
If you’re ready to start — especially if you don’t think you can — here are five ideas to help you build your emergency fund.
Set a deadline for establishing your fund.
Setting a deadline can help you achieve your goal faster. Set a deadline for reaching your emergency fund goal based on your current financial situation. Three months, six months, or even a year is possible. The earlier you begin, the easier it is to raise the necessary funds.
Take stock of existing assets
You may already have some assets that could be used to fund your emergency fund. It could be extra cash in your savings accounts or fixed deposits that aren’t tied to any specific goal, among other things. You can put some of that money into an emergency fund.
Make a monthly commitment.
Draw a monthly commitment to your fund based on your shortfall figure, which is the amount by which your requirement exceeds the funds you have.
For example, if your total fund requirement is $3,754 and you already have a $1,251 fixed deposit, you could withdraw $1,251 from your existing savings and save another $2,502.
A simple way to get the figure is to divide it into monthly commitments. If you set a 6-month goal for yourself, you must set aside $412.88 each month. You may have to be extra frugal until you reach your goal, but the effort will be worth it in the long run.
Set up a separate account for accumulation.
When you have the extra money in your savings account, you are tempted to spend it. You could instead put this extra cash unrelated to your goals into a separate account set up to save for an emergency fund. You could simply do this by:
- Make a promise to yourself not to withdraw any money from this fund until you reach your goal.
- Setting up an auto-debit feature on your salary account to ensure you meet your monthly commitment to the emergency fund.
- Scheduling this transfer as close to your income credit date as possible so that you don’t have an opportunity to spend this amount on other discretionary expenditures.
Channelise any lump sum inflow into your emergency fund
Putting aside any lump sum inflows, such as a bonus, income tax refunds, or gifts as credit, to meet your goal of creating an emergency fund as soon as possible. Read Also; How Can You Do Business Via Amazon
Investing in Mutual Funds at Your Own Risk
Traditionally, Indians have chosen investments that provide capital security and fixed returns. This is a major reason why fixed deposits (FD) and recurring deposits (RD) are becoming more popular in the country.
You can also invest in FDs and RDs at banks and post offices, which are the safest places to spend your money. Mutual funds did not garner the same level of trust because many AMCs are unfamiliar to investors.
Are Mutual Funds Safe
There are two ways to determine the safety of an investment:
- Security in the company or institution where you have invested stealing your money.
- Capital protection and fixed returns are examples of safety.
While no investment is completely risk-free, ClearTax’s in-house experts have handpicked the best-performing mutual funds by researching various mutual fund houses across the country. However, before you invest, you should be aware of the following:
No one will run away with your money
If you are concerned that mutual funds are a type of dud, rest assured that mutual funds are completely safe. You will not wake up one day to discover that the mutual fund you invested in has vanished along with your money. That is simply not going to happen! Why are we saying this?
No fund house can steal an investor’s money because mutual fund companies are regulated and supervised by regulatory agencies such as the Securities and Exchange Board of India (SEBI) and the Association of Mutual Funds in India (AMFI).
The license to operate a mutual fund house is granted after due diligence; in the same way, banks receive their banking license. In short, a mutual fund company is just as secure as a bank.
If you understand mutual funds, they are a safe investment. When investing in equity funds, investors should not be concerned about short-term fluctuations in returns. You should select the best mutual fund for your investment objectives and invest for the long term.
You should conduct research and learn more about mutual funds before investing. Several mutual funds suit different investors, including aggressive, moderate, and conservative investors. Read More; How To Start profitable Digital Marketing Agency
ClearTax’s online platform allows you to invest in various mutual funds based on your financial objectives. Before investing, you can speak with our experts and learn about mutual funds.