Finance is a crucial part of anyone’s life. Managing your personal finance is not an easy task. There are several aspects involved in personal finance like savings, investing, budgeting, achieving goals, etc. The way you manage your personal finances will determine the happiness in your life. If you are poor at managing your personal finance, then you will end up losing all your money and will not be able to fulfil your goals. So in this article, you will get guidance for your personal finance.
What is Personal Finance?
The most common fear that anyone has is whether their money will be enough to sustain their lifestyle till death. A financially well-managed person will be able to lead a good life and also would be able to leave wealth for their heir to enjoy.
Personal finance involves how well you control your expenses, manage your credit cards, proper budgeting, savings, etc. You should know how different financial factors affect your wealth. If there is a change in interest rate in the market, then how much will it affect your portfolio? All these factors are important for your Finance.
Components of Personal Finances
Components of Personal Finances are:
Creating your budget.
Budgeting is an important factor to maintain a well-balanced life. Decide in advance the expenses and savings that you plan to do for a particular year. Try not to deviate from your budget. Always look for ways to save your money and park some money for emergencies. Creating an emergency fund is also an essential part of budgeting. Your budget should cover most of the scenarios that involve money. Only by creating a strong budget plan, you can achieve your economic goals.
Planning for Retirement
When you earn well, your lifestyle changes. You make unnecessary purchases that you regret later. So in personal finance, planning for retirement is an important part. You will not earn for your entire life. A penny saved now will help you to sustain life after retirement. Check for different Retirement planning programs and choose the best one that is suitable for you. The programs will guide you on ways of life after retirement. This way you will be able to understand what you plan to do after retirement and how much you need to save for that.
Getting Insurance Policy
There are several kinds of insurance policies. A life insurance policy will help your dependents monetarily in case of your sudden death. Whereas health insurance policies will help to pay your medical bills in case of any medical emergency. Staying covered is the best way to deal with any unprecedented situation in life. Buying life insurance is necessary for you and your dependents. But before buying any policy, you need to calculate the sum assured that will be enough to cover your dependents in case of your sudden demise. Having a policy with a lower sum assured is similar to not having any policy at all. So get the right coverage to protect your family.
Tax Planning
Tax is what you need to pay to the government on your income. As a responsible citizen, you should always pay tax, but there are several investment options that will help you reduce your tax liability. Learn about the tax savings investments and do proper tax planning to save your hard-earned money. The income that you will generate in a financial year will be assessed and taxed in the assessment year. So make proper investments and keep proper income proofs to file for your tax return. Filing a tax return is necessary as it will help you get back any extra tax that you have paid in the financial year.
Investments
The inflation rate is increasing yearly. Things are getting costlier, and your purchasing power is falling drastically. To maintain your purchasing power, you need to invest your money so that at least it beats the inflation rate. There are several tax savings investment schemes that will help you build up your wealth and save tax. Investments in real estate will also help you save tax as the interest charged is tax-deductible. So be smart and learn about investments that will help you to grow your wealth and save your taxes.
Prioritising Goals
Everyone has different goals in their lives. You need to rank your goals based on priority. Unavoidable goals like child’s education, marriage, building a house, etc. should be met at any cost and needs proper planning. If you start spending your money on fewer priority goals, there may not be enough money to address the necessary goals.
Importance of Personal Finance
With proper personal finance planning, you will be able to live your life stress-free. The importance of Personal Finance are:
It helps you to understand your financial condition.
Makes your prioritise your goals based on your earnings and savings
Creates an environment of satisfaction and control
Indulges discipline
FAQs
What is Personal Finance?
Personal Finance is financial management that individuals and families perform to channel their spending and savings appropriately. Without proper personal finance, the spending may surpass earning, and the individual may get bankrupt.
Is handling credit cards a part of personal finance?
Yes, proper handling of credit cards is an important part of personal finance. Most of you are aware of excessive spending on credit cards. Personal finance will help you to understand the proper and limited use of Credit Card.
How to create a proper budget for Personal Finance?
Creating a budget is the first step of Personal Finance. The budget will give you a snapshot of your financial scenario. You need to mention your entire earnings and expenditure and try to create a proper balance.
What is ELSS?
Equity Linked Savings Scheme is a Mutual fund that will help you grow your investment and have tax-benefit. The investment under ELSS is exempted from tax to a cap of INR 1.5 Lacs under section 80C
Is a Life Insurance policy necessary?
A Life Insurance policy is extremely important to safeguard your family and other dependents. As we all know, life is uncertain, so if something happens to you, your dependents will suffer. A life insurance policy will help your dependents in case of any unforeseen incident.
How to save for retirement?
There are several long-term investments like PPF, PF, NSC, LIC that will help you to earn good returns and create a corpus for retirement. All the above-mentioned investment plans are long term and give tax benefit.
How to prioritise goals?
There are certain goals that are absolutely necessary for example, marriage, child’s education, and then there are goals like buying an expensive vehicle. So if you buy a Hayabusa with all your savings, then obviously, you will not have money to meet the necessary goals.
Do I need an advisor for my Personal Finance?
If you are not aware of different investments available in the market and tax planning. Then having an advisor will be wiser. Shepays website will help you understand your personal finance and the investments you need to make.