12 Personal Finance Tips That Will Do Wonders For You
The art of personal finance is something that everyone has to master at some point in their lives. Some people realise it the hard way – by incurring high debts and fighting their way through the mess; while others exercise extra caution and catch up early on. Irrespective of the situation, it is crucial to get your finances in order as early as possible, so that you have good control over your money later on. With that in mind, we have prepared this list of 12 personal finance tips that will help you get started. You may already be aware of a few of these, but it doesn’t hurt to reiterate them and see if you are following through.
- Make A List Of Your Debt & Work On Clearing It:
It is quite difficult to be financially sound when you owe a lot of money. Whether it is a personal loan, student loan or even your credit card bill, debt is a liability that will hold you back, no matter what. The key thing here to realise is that you’re paying interest on the amount you have borrowed and depending on the type of loan, the rates may be exorbitantly high.
Therefore, your first priority should be to clear these loans as soon as possible, or at least, bring them down by a significant proportion. It is possible to do this by making a list of your debt and preparing a plan to bring them down. Needless to mention, loans with the highest rates of interest need to be cleared first. This includes things like making pre-payments on loans and paying more than the minimum amount due on credit cards. If you have multiple loans, you can also look into debt consolidation.
- Write Down Your Financial Goals:
Psychologically speaking, you are far more likely to achieve your goals when you simply write them down on a piece of paper. Whether it is saving for that dream vacation, buying a new house or getting a nice gift for your close ones, writing them down will give you better clarity on your everyday expenditure. For example, that 1,000 rupee shirt may be less appealing to you once you realise that you are saving for something far better. Similarly, the more you motivate yourself, the better you will be able to cut down on your unnecessary expenses.
- Start Making A Monthly Budget – Period:
One of the best ways to go about understanding your money and controlling your expenditure is by making a monthly budget and sticking to it. In fact, budgeting will also help you achieve your financial goals. Instead of haphazardly spending money every month as and when needed, it is better to plan all the necessary expenses in advance and then prepare your budget. You need to be sure that it is realistic and suitable for your lifestyle.
You can do this by analysing your spending habits to get a better look at how you treat money. This includes meticulously tracking every single penny that comes your way. To make your job easier, you can look into using personal finance apps like BankBazaar. The apps allows you to:
- Do a bank balance check on multiple bank accounts.
- Track your monthly spends through a clear graphical representation.
- Track all of your financial transactions automatically, no manual actions needed!
- See where your money goes and prepare a budget accordingly.
- Check your credit card limit and total outstanding balance as well
- Keep a close watch on your credit card spends as well
- Get reminders on your credit card bills and loan EMI payments too.
You should also be sure to revise your budget on a regular basis to accommodate lifestyle changes, salary revisions, and other related scenarios.
- Prepare An Emergency Fund:
There is no saying when an emergency will strike you. In case it does, and frankly, it is likely to happen at some point in your life, you need to be prepared for it. Whether it is a loss of job, illness or an unexpected loss in your business, you need to be financially prepared for what comes ahead so that you will have one less thing to worry about.
As a rule of thumb, an ideal emergency corpus should have enough funds to help you survive for a period of six months to one year. This is the minimum amount that you need to survive and the sooner you do it, the better off you will be. This, in turn, depends on your personal habits, financial condition, liabilities, if any and other factors.
The way to go about it is by calculating how much money you need to survive every month – this includes important expenses like accommodation and food. As a general rule of thumb, this number can be anywhere between 20% to 25%.
5. Start Investing:
The world is full of countless people who have made a killing by investing the right way. Keep in mind that the emphasis here is on the right way. There are many pyramid schemes and investment vehicles out there that are waiting to dupe people of their hard earned money. As an investor, you need to avoid these and be on the lookout for the same.
Instead, you can start with learning about the fundamentals of stock markets and mutual funds, and invest in the same once you feel comfortable. You can also look into other instruments like fixed deposits, recurring deposits, bonds, gold, et cetera, which will give you a decent return on your investment. Remember – the name of the game here is compounding. Your balance will grow as and when your investment earns interest. And when this interest is added to your account, you earn an interest on the original amount plus on the interest you just earned!
- Maintain A Healthy Credit Score:
Your credit score is an important aspect of your financial life as it tells the lender about the kind of borrower you are. If your credit score is good, then you will have a much better time applying for loans. On the other hand, a poor credit report may close all potential doors for you to get a credit.
In order to keep a healthy credit score, you need to clear your outstanding dues in the given timeframe. This is further possible by using your card only for the necessary expenditure. For instance, if you have a recurring expenditure of your phone bill every month, then you may want to consider putting it on your card and clearing it within the deadline. This will build your credit history and also allow you to earn reward points.
Another thing that you can do here is cut down on impulsive spending. We have all committed the mistake of using the plastic in a situation that doesn’t really demand it – whether it is for an expensive dress or buying your mate that fancy drink. Lastly, as far as possible, always pay more than your minimum amount due. By ensuring that you are using your credit card responsibly, you are not only working towards keeping your debts low, but you are also taking control of your finances.
And while you are at it, you should also check your credit score regularly to see where you stand and accordingly, work on it to improve it further.
- Consider Tax-Saving Instruments:
Tax-saving instruments are a wonderful way to grow wealth and save tax. Yes, that’s right, by investing in these tax-saving plans, you are growing tax-free income and are also reducing your tax liability. Some of the most popular schemes are Equity-Linked Savings Schemes (ELSS), Public Provident Fund (PPF), Unit Linked Insurance Plans, National Savings Certificate, and 5-year Bank Fixed Deposit.
One of the best things about these tax saving instruments is that they do not require that much knowledge or research before investing. Yes, some research is necessary to understand where and how your money will be invested – in fact, this is something that every investor should do. However, you won’t have to break your head and understand the intricacies of finance and markets to invest in these tax-saving vehicles.
- Speaking Of Taxes, Maintain A Separate File For Them:
Over the course of a financial year, it is advisable that you keep a track of all your investments, premium payments, loan repayments, charitable donations, income from side-gigs, et cetera. This will only make your job of filing income tax returns easier. With all the records at one place, you will not have to run around or frantically search your records.
Additionally, if your investments fall under the tax-saving scheme, then it is possible for you to claim a refund. Similarly, it is also possible to claim tax benefits on home loans. You can file taxes either by yourself or with the help of a professional chartered accountant. The latter option is definitely easy although, it may cost you a bit.
9. Start Saving For Retirement:
At present, you may have many financial commitments – clearing your dues, saving for your goals, paying the home loan, other things. With so many things to keep a track of, it becomes quite easy to neglect your future. However, the good news here is that you have time on your side and therefore, it is more than possible to save a decent amount to enjoy your retirement.
Instead of postponing, you need to start acting on it now. Start with a small amount at first – 5% or 10% of your salary and increase it eventually as you progress in your career. You may not miss this amount initially but year-after-year, once the sum is accumulated, you will be grateful for keeping some amount aside for your retirement. Ideally, you can create a recurring deposit with standing instructions to deduct a specific amount every month. You can also look into retirement-specific schemes like that National Pension Scheme that enables one to save for retirement.
- Track Your Expenses:
As stated previously, the best way to understand money and control it is by seeing where it actually goes. This is something that needs to be said in a separate point because many people actually neglect this important habit. In fact, most of the time, it will be quite difficult for you to manage your finances until and unless you look at your spending habits.
Yes, you may not enjoy it when you sit down and realise that you spent a lot your money on online shopping last month. But once you see where and how you are spending your money, you will be in a much better place to actually act on it and cut down on unnecessary expenses. At the end of the day, the idea is to identify the money leaks and reduce spending on them in the future.
11. Evaluate Your Net Worth:
Your net worth is nothing but the difference between your assets (like cash, investments, gold, properties, et cetera) and your liabilities (loans, credit card dues, debt). This is an excellent step to assess where you stand financially and will give you a precise picture of what you need to do to achieve your monetary goals. If your liabilities are more than your assets, then you need to start working on reducing your debts immediately.
This is something that you should do at the end of the year to see how you have progressed – or slipped, financially. In many ways, this will also serve as a reality check to keep you on track and not make unnecessary purchases.
- Remember – Time Is Money, Make The Most Out Of It:
You must have heard countless lectures on the importance of time and how it is the most precious thing in the world. Therefore, you should strive to make the most out of your free time. In this case, you can use it to make some extra money.
Whether it is running a blog, a small business or a simple freelance gig, side hustles are an excellent way to augment your income on the side and also improve your net worth. Once it has been set up, it doesn’t take that much time out of your daily schedule. Depending on your preferences, there are several jobs that you can consider doing in your spare time – data entry, answering surveys, coding, writing, et cetera.
You can also use your free time to learn skills that are in demand in the market. This will open new paths in your career for you to explore and grow further along the way.
As you can see, becoming financially responsible is not that difficult as one may make it be. All you need is discipline and patience. Once you are past the initial hump, you will find yourself navigating your finances like a pro.