How to keep track of your financial planning.
" Money is a terrible master but an excellent servant " This quite specifies how it is crucial to manage your money as well as make it work for you. A lot of us spend a lot of money and almost 20- 22 years of our life learning how to earn the money. But when it comes to managing that money we need to improve ourselves. We all earn money with a lot of effort and hard work so it is significant to manage it as well as grow it efficiently and effectively. So in this article, we have put down everything about personal finance and the beginners guide to manage their money as well as to keep track of financial planning . So welcome to your money journey!!
What is Personal Finance?
Personal finance is knowing your income, expenses and investing for your future goals to earn inflation-beating returns according to your risk appetite. An individual has to be financially literate to be able to manage personal finance.
Personal finance management includes choosing the right investment opportunities for yourself and knowing how to allocate your money in different investments. In layman's words, managing personal finance is reducing their unnecessary expenses, getting rid of debt, building the habit of saving and investing, living relative below your means, and building passive income sources to source their luxuries.
Below are some steps you have to take to manage and track your finances.
1. Know your income, expenses and plan accordingly
It is very important to know how much you earn, how much to spend and most importantly where you are spending your money to be able to manage your money. The first step in managing your finances is cutting down on your unnecessary expenses and planning your budget according to your income. A lot of us tend to spend most of our income which is the habit we have to get rid of to achieve financial freedom.
2. Pay yourself first
This Popular quote from rich dad poor dad represents the importance of saving and investing. Before spending the income an individual has to make sure that he is investing a considerable part of it. It is crucial to building a habit to invest before splurging. So next time when you think of buying a bullet bike or taking your Starbucks on the go make sure you own some stocks of royal Enfield and Tata consumers. It will give you a lot more benefit than just a short term pleasure.
3. Know the difference between saving and investing
A lot of people still keep their money in savings accounts or invest it in traditional investments like fixed deposits or recurring deposits. The inflation rates are rising day by day so this is your time to be smart and invest in inflation-beating investments. There are many smart investment options available in the market like stocks, mutual funds, gold bonds and many more. So choose the right one for you and invest wisely.
4. Start building your portfolio
Now that you have started investing you can start building your portfolio. The portfolio is the variety of investments done according to your financial plan and risk appetite.
Building a portfolio differs from person to person but below are some steps through which you can start investing and building your portfolio.
5.Buy life and health insurance
It makes sure to reduce the risk of financial crisis in health emergencies. It provides financial assistance for your loved ones in your absence and that's why it is important to have life insurance and health insurance. Hence life and health insurance are what you must buy before planning for portfolio management.
6.Build an emergency fund
If you want to protect your portfolio then build an emergency fund. It will help you to fund all sudden and emergency expenses. An emergency fund should be at least the sum of your 6 monthly income.
7.Diversify your portfolio.
While managing your portfolio do not forget to diversify it. Include all investments which are right for you. Also, include millennial investments like crypto and NFT's as they are the future of investing.
8.Manage the risk.
While managing your portfolio, manage the risk. Include some defending and some partly risky investments according to your risk appetite to balance your portfolio.
9.Monitor your portfolio and make timely changes.
Last but not the least, monitor your portfolio from time to time. Remove and add new investments according to the change in the market trends to achieve the maximum returns on your portfolio.
10.Manage your taxes.
It is often said, "every penny saved is every penny earned". You can save a lot of money if you manage your taxes efficiently. Middle-class people often tend to pay more taxes even when they can save them legally. There are so many ways to gain tax benefits. Life insurance, health insurance, PPF, EPF and many more. You just have to research a little and you will soon find many ways to manage your taxes. Know the difference between asset and liability.
To put it in simple words as it is anything that puts money in your pocket and liability is anything that takes money out of your pocket. Know the difference between assets and liabilities. Your dream car and even your home are your liabilities so think wisely before investing a big chunk of your earnings in them.
Build assets like real estate properties, stocks and many more. Avoid the loan liabilities. Try as much as you can to live below your means so that you can avoid taking loans. If you have any loan liabilities then manage them in a better way. Use all the techniques to reduce your interest rates and also don't forget to gain some tax benefits from your loans. Focus on building assets and not liabilities as that's what makes the poor the poorer!!
The famous quote says " it's not how much you earn it's how much you keep" so know the power of long term investing, believe in the magic of compounding and make your money work for yourself. Always remember the journey of thousands of miles begins with one step so start today and take charge of your finances.