Education, Executive Courses, Mutual Funds

Personal finance, as easy as personal hygiene

“Money compounding is one concept that does not hit you unless your stars are aligned”

Manoj Arora

Managing personal finances is an underrated life skill. It hits you right on your head when your responsibilities start piling as you get married. It is common to see youngsters, who start earning, spend the money without a care in the world. However, that changes the moment they become parents or have any medical emergencies.

A set of personal finance rules will make sure you’ve funds for your luxuries, debts, emergencies and all the other expenses one might incur.

It is always better to plan for the future instead of regretting when its too late.

For all of us who wish to begin building a strong portfolio, here are a few tips that you can follow easily:.

  1. Set a budget

The first thing you need to learn when you start earning, is to budget your expenses. Budgeting means planning your finances.

Keep a track of all the things you do throughout a month. Divide your earnings in such a way that your expenses are lesser than your savings. This will not only help you gain control over your earnings but also help you keep track and plan for the future.

The future is unpredictable and you never know which month might end up being expensive. You must be financially ready for these moments.

These are the few things you need to keep in mind when you budget your earnings:

  • Earnings
  • Savings
  • Expenses
  • Investment

Your earnings are the total amount you receive at the end of the month, which is divided into 3 funds. You need to divide it in a way to make sure that the average of your investments and savings is more than your expenses.

  1. Investing

After planning your budget, decide the investment amount.

Any person who invests, expects a return sometime in the future.

We do this for multiple reasons, from supporting our family needs to buying luxury items and many more.

The greatest dilemma for any investor is, “where to invest”? Here are some of the most sought after and common investment options for investing-

  • Stocks- When you buy a stock of a company, you’re entitled to a share of the profit, whichever is incurred. This type of investing has its own risks but at the same time it could be a very profitable scheme for you.
  • Fixed Deposit- For people who don’t have the appetite for risks, this is your safest bet. Expect a return of around 6% on your investment. The returns are lower than stocks, but definitely risk free.
  • Mutual funds- Mutual funds have lesser risks when compared to individual stocks or bonds. Funds accept investments and invest in individual stocks on their own. Your money is invested by fund managers, who have a few decades of experience in managing funds.
  1. Get rid of your debts

Once you start budgeting your expenses and investing, you’re half way there. People start struggling when they can’t get rid of their debts after using credit cards. Compound interest is the biggest trap you could fall into, so our advice is to avoid credit cards.

Now, if you’re the sort of person who can’t resist a credit card, make sure you pay more than the minimum amount due each month. This could help you save huge chunks of money in the long term.

On other hand you’ve certain debts like the ones incurred while purchasing a home can be seen as a good debt. There are 2 crucial reasons why it could be a good debt. Firstly, make sure you invested into an asset whose value is set to increase. Secondly, opt for lower rate of interests which will be beneficial in the long term.

High interest rates will make getting out of debt a huge task in the longer run, so make sure you look into these fine details.

  1. Insurance

You might think that everything is has been covered from budgeting your expenses to investing and getting rid of debts, but don’t forget that you’ve built something very important here and this fortune needs to be protected.

There are certain unexpected disasters that could leave you in ruins. If you’re not insured, it could leave a huge hole in your pocket. In order to stay protected during such situations it is important to have a permanent or term life insurance as per your needs.

Conclusion

No matter who you are, or what your current financial situation is, if you can follow these few tips, you can secure your financial future. Differentiate between your needs and wants, and then build on it.

BSE Institute’s  Executive Program in Investment Management helps professionals learn basic and advanced concepts of investing and portfolio management. It can help you be a top notch investor in no time.

 

Leave a Reply