Personal Finance deals with realizing an individual's financial goals, saving for future be it through short term, medium-term or long-term plan, planning for retirement, saving for children's education or marriage and so on. It mainly depends on an individual's income, expenditure, goals, living requirements and the plan chalked out to fulfil those goals within the financial constraints.
In today's era, it is very important to be financially literate to make the most of your income and expenses. Knowing finance helps individuals to differentiate between good and bad financial advice and thus make a better decision to reach the desired goal.
Despite having secured a good education, people fail to manage their money as they will not be having a fair practical idea as to how to deal with their earned money. In some cases, though people are employed and earn for their living they end up living paycheck to paycheck without having sufficient savings to meet the emergency.
So, having financial literacy helps an individual to improve any budget, no matter how small it is.
Chalk Out a Budget Plan
The first and foremost thing to be financially literate is to chalk out a budget plan. Some people do not understand the importance of preparing a budget and do oppose the plan as they believe it to be too rigid.
But having a budget is just a plan for the money you have. When an individual budget the money, he/she will tell the money what to do rather than the money telling you what to do.
Debt is like a burden on most of the borrowers. Though the amount of debt made is less, the borrower will end up repaying more than the debt he/she made owing to the piling interest which gets added to the principal amount.
A loan can be taken for anything be it for education or purchase of a house or car loan or consumer debt or mortgages or hospital bills and so on.
It is necessary to repay the debt at the earliest in your life. Some of the financial gurus say one should use the snowball approach to repay the debt. As per this approach, first, begin with the smallest debt you owe and work up towards the biggest one till you are debt-free.
Create an Emergency Fund
As the name suggests, an emergency fund is an essential corpus which all the common people should set aside to tackle emergencies. With this fund, one can fall back when a crisis or any unexpected scenarios come up. Hence it is necessary to design it specifically to meet the unanticipated financial shortfalls in life.
It is best to park these funds in a highly liquid investment. At the same time, one should ensure that they do not get penalized in the form of pre-withdrawal penalty or exit load during withdrawal. The value of the amount parked should not reduce either and should deliver appropriate returns.
Invest for Future
Once you have repaid debt and parked around three to six months of monthly income into emergency corpus funds, you should start investing for your future. Begin to put aside at least 15% - 20% of the monthly income towards retirement schemes and parallelly start a saving fund for your children's higher education.
The growing expenses of higher education have to be taken into consideration and hence the parents or guardians should begin to save for their wards future education.
Avoid Unnecessary Spends
If you are trying to get out of debt and saving money, then you should surely avoid spending unnecessarily. The most crucial things required for the existence of human beings are food, shelter and healthy relationships.
Spend your money wisely only on necessary things based on the requirement. Do spend the money which your budget allows you to do and try to avoid going overboard.