Personal Financial Planning: 8 Things You Should Know

Aug 03, 2018 | 4 months ago | Read Time: 3 minutes | By iKnowledge Team

Personal Finance

Voila! You just received a message from your bank on your first salary credit.  As you think about how to make the most of this joyful moment, spending is on top of your mind. Not that you can be blamed for it. Go ahead and plan a celebration. While you do that, you may want to know a few things that may be useful on the same day next month and thereafter.

1. Income – Savings = Expenses

‘Pay yourself first’. This simply means that out of what you earn, a certain percentage must be saved before you make any purchases. The rule should be ‘income minus savings equal to expenses’, not vice-versa. To do this properly, you must first identify your goal, estimate any adjustments and then figure out what you would have to save in total.

2.  Plan A Budget

Keeping a spending structure in mind when you get your salary will tell you what your expenses would look like. To create a budget for yourself, start evaluating your monthly expenses like rent or mortgage, daily utilities, groceries, insurance premiums and other essentials. Remember to include an emergency fund for unexpected expenses.

3. Cut Your Expenses

Once your budget is finalised, you can start monitoring your expenses. This way will allow you to see which ones are necessary and which are not. You can then make cuts in expenses that are not necessary. It will get you one step closer to your financial goals.

4. Secure Your Family (Insurance)

The first pillar of all your financial plans is insurance. It is one of the few important tools that bring you closer to a secure future. Ideally, you should have a life cover at least 10 times of your annual income. The actual need can depend on your age, goals to be achieved, accumulated wealth and financially dependent on you.

The most cost-effective life insurance that you could go for is a pure term insurance plan. It comes with low premiums and high-cover financial protection. The premiums you pay go directly towards mortality risk coverage.

5. Track Your Investment

Just like a medical check-up, investments need to be monitored regularly. There is no use in creating a plan and building a portfolio if you don’t monitor your asset’s growth. The monitoring is essential to mark progress and to decide corrective measures whenever required. A collective monitoring should happen quarterly for short-term goals and annually for long-term goals. Next, you must look at individual performances of your investments for growth and correction.

6.  Never Ignore Taxes

Much like the oxygen you breathe, taxes will never go away. While the rules and tax slabs change with time, taxation itself hasn’t changed yet. Taxes affect every aspect of your finances, from your income to all your expenses and purchases. You may look at it to reduce your losses and increase your gains. You can take measures to save taxes by investing your savings. Putting your money in tax-saving investments at the beginning of the financial year can help you maximise your exemptions and deductions under various sections.

7. Know Your Debt

Debt can be a huge obstacle in the way of your financial goals. Eliminating these debts should be your priority before you start planning anything solid for your future. Setting up a debt elimination plan may help you pay it off more quickly. After your outstanding debts are cleared, you should make a strong commitment to stay out of debt.

8. Save For Retirement

Wanting a smooth life post-retirement means cultivating the habit of savings. The future can be unpredictable but that doesn’t mean you can’t be prepared for it. Retirement should relieve stress, not give it.

Conclusion

There is nothing in the world that you cannot learn and understand, including finance. It may come off as a bunch of jargon but, with proper understanding, you can master it. Same is the case with personal finance planning. No matter what your financial goals are, it is never too early to start.

Advt. no: IA/Jul 2018/4267


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