Personal Finance
Personal finance refers to the management of an individual's financial resources, such as income, expenses, savings, investments, and debts. Personal finance covers a wide range of topics, including budgeting, saving, investing, retirement planning, insurance, taxes, and estate planning. It basically means managing your finance to get the best result out of it.
Table of Contents
Today personal finance seems as a neglecting topic but its actually very important to you. Many people had become rich by just managing their personal finance well. And many rich people had seen bad days due to lack of knowledge of their finance.
Personal finance is important as -:
· Gives Financial security – Personal finance helps individuals to achieve financial security by managing their income, expenses, savings, and investments effectively. This can help to reduce financial stress and provide a sense of financial stability. And hence in the time of financial instability in your life your savings will kick in and provide you a back.
· Helps Achieving your goals – Having a good finance can help you achieve your life-long goals such as buying a car, buying a house, starting your own venture, achieving financial independence, saving for retirement, or any other life goals.
· Improves credit scores – Having set a good financial plan can help you manage all your money and having a good financial discipline which can also help you improve your credit card scores (More than 800 points). By this you can get various loans which can be an education loan, personal loan or a business loan to scale your business at very low interest rates.
· Helps Managing or removing debt – Having good personal finance, you can manage your debt effectively and pay it quicker and being debt free.
· Beats the inflation – You might have noticed the prices of bread or any other daily use items’ price going up from the last year. This is due to inflation. By having a good financial plan, you can keep an eye over inflation and beat it by growing your money from different ways.
· Investing for future – Many people has got rich just by investing which is a very important component of personal finance. So investing in future can help you build your wealth over time through stocks, bonds, commodities, real estates, or by investing in your business. For example – Just by investing $500 a month for 20 years you can generate a wealth of more than $1/2million.
Overall, personal finance is important because it empowers individuals to take control of their financial future, make informed decisions about their money, and achieve their financial goals.
Components of Personal Finance
Personal finance is one of the very vital part on one’s life. In order to achieve your personal finance goals one need to follow certain financial rules. The components of personal finance include -:
1 Budgeting: Budgeting basically means taking management of all your expenses and where do you spend your earned money. You can also maintain your budget book. This can help you analyse that where is most of your money going and where do you need to lower your spending.
2 Saving: After you have maintained your spendings you can figure out that how much of your money is saved. You can increase your monthly savings by lowering unwanted expenses. Saving money can save you from any upcoming emergency and also by this you can save money for any of your future expenses such as marriage, etc.
3 Investing: After you have saved your money, you can invest it into different assets such as stocks, bonds, real-estates, liquid funds, etc. This can help you build your long term wealth accumulated over time. Remember, Investing will only be extraordinary only when you have patience and risk tolerance.
4 Debt management: In case you have any certain debts, you have to manage it in order to pay it out as soon as possible to get out of tremendous interest rates. You can do this by paying an extra Emi at the end of the year and increasing your monthly Emi pay-outs by any increase in your monthly income.
5 Insurance: Many people consider insurance as a bad thing as it might give any return or might not. And also due to this many people take guaranteed return plans but in return they end up paying higher premiums. Insurance gives you an financial help in case of any financial instability comes into your house. There are many types of insurances such as life insurance, health insurance, car insurance, etc.
6 Retirement planning: It means creating an proper structured plan for one’s retirement in order that he/she can meet their future expenses even when they are unemployed. For this you can create a plan about your retirement expenses and see your income sources after retirement such as investment returns, bonds, real estates’ rent’ etc.
Personal Finance Mistakes to Avoid: -
Although, personal finance seems to be very easy yet there can be some mistakes that you might be doing while doing your personal financing. Some of them are: -
1 Overspending: Many people spend more than they earn by taking certain loans by credit cards, or purchasing items on Emi which ultimately takes you to a debt trap. This loan with time becomes very big and leads to a financial instability.
2 Not having an emergency fund: An emergency fund helps you in a time of financial hardship. Not having an appropriate well-funded emergency fund will make your life financially risky.
3 Over usage of credit cards: Excessive usage of anything could be dangerous. Using credit cards very often on useless things will lead to a larger EMI and once you are unable to pay it within 30-45 days you will be charged interest rates which are as high as 30%-45%.
4. Not Investing: Not investing your money will lead to you into a financial stress. With the moving inflation which is at a rate of 4%-6% your money is depreciating with time. In order to beat this inflation you need to invest your money. You can invest your money into any liquid fund, or an index fund which can at least give you a return to beat the inflation.
5. Not having an insurance: Nobody can give you a guarantee of your life. But in case you got any calamity you can use your insurance to provide you an financial back. Some of the mandatory insurances that you should take include term life insurance, health insurance for you and your family.
6. Relying to one income sources: Relying on an single source of income can not be considered as a good idea as if you have a single source of income and in case if you lose your job you have to face hardship in meeting your daily expenses. And hence is recommended to have multiple income sources.
Conclusion: -
At
last, Personal Finance is a thing that we should not avoid. It is a very
important field as it is related to managing your money and getting the best
out of it.
Personal finance refers to managing an individual's financial resources and it covers topics such as budgeting, saving, investing, retirement planning, insurance, taxes, and estate planning. Personal finance is essential as it empowers individuals to take control of their financial future, make informed decisions, and achieve their financial goals. Its components include budgeting, saving, investing, debt management, insurance, and retirement planning. To avoid mistakes such as overspending, not having an emergency fund, overusing credit cards, and not investing, one needs to follow certain financial rules. Overall, managing personal finance is critical for financial stability, achieving financial goals, and preparing for future uncertainties.
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