Personal finance is something that everyone should look at closely before it’s too late. Managing personal finances can often seem daunting, but with the right approach, you can secure a stable and prosperous future. Here are eight essential tips to guide you on your financial journey:
1. Begin personal finance with precaution
While setting on the voyage of building wealth, you need to ensure you are leaving your family in safe hands with the certainty that they should have to lead a life full of quality, with you or even without you. That brings in the first step to begin with – get insured. Even before you take your first step, save money to buy sufficient health insurance that covers you and your family (dependents).
If you are reading this at the age of 30-35, an insurance cover of a minimum 5 lakh to maximum 10 lakh Indian Rupees seems sufficient. (Considering both you and your partner are healthy as of today, it will cost you around INR 20,000, but all of it is worth) Once this is done, carefully choose your term insurance and get yourself covered with a reasonable plan insuring at least INR 1 Crore and above (Considering the present and future value of your money)
This will cost you another 15K assuming the same conditions. Assuming you chose your most suited brands and premiums accordingly, we are certain that INR 50K is a sufficient amount to cover these both annually. Now that you don’t need to worry of your medical bills or your absence, it will clear off much of the stress of provisions for you so that you can focus on progressing.
2. Insurance is not everything
Even if you are now covered with extreme exigencies, it doesn’t stop here. The extra cushion that you will need to adjust the expense in case you get admitted for 3 months, lose your job, or lose the ability to work or lose your source of income in any possible way, you should always have a cushion of at least 6 months of your total monthly expense (calculate this by budgeting, which is a rule that we consider you are already following since you are here to read this blog)
3. Do not fall for Get-Rich-Quick Schemes
The only shortcut to fast money is crime, which we do not support here, so forget it. Remember the saying – Easy now makes it harder later and harder now will make the future easy. It’s better to take a slow, steady, and sure path to financial stability than to risk everything for a quick gain and lose too much at once which you already made slowly and with all your hard work. Respect money and it will pay off.
4. Greed and Fear will drown you in Agony.
If an investment of yours grew 6 times in 2 years, it’s relatively very good, but what we are missing here is that you waited for two years and that’s how you found out the rate of return. Similarly, if you waited for 4 years, mathematically, it would grow even more with a bigger multiplier, but in reality, it might not.
On the contrary, it might go south 8 times of what it was yesterday, and here you are now, wishing you would have gotten off the ride at the right time. In both cases, your emotions will control the decisions you make. Discipline breaks emotions and makes you cold enough to bear losses and reap the fruits of profit. Ensure the balance.
5. Making a rupee more is easier than saving one.
It is easy to sit down and list your expenses and draw lines to your budgets but in reality, every month when you make the list, you will find out somehow the number crosses the line or at least gets nearer. Do this for 12 months and realise that it is pretty difficult to control your expenses.
It averages to the same, you cannot save beyond a limit and we don’t suggest skipping breakfast to save 20 bucks and become a personal finance expert. Since we encourage quality of life, we want you to eat well. Do not skip meals or fuel-ups for small debits. Instead, focus on how to add those numbers to your income sheet. Try to create multiple alternative sources of little income that make up petty expenses for you or your family. Making a little more money is easier than cutting a little more of your daily expenses, let that sink in.
6. The magic of compounding isn’t real enough.
Every day a reel on Instagram hits you with a personal finance tip or an SIP calculation that shows dreams of you becoming a millionaire if you invest X amount for Z years etc. We know that compounding is magic but it magic works with T&C applied. Beginning with the base, while calculating the returns, don’t forget to check the denominator(your actual investment) and then the numerator (your returns).
I can invest 1 rupee and get 2 rupees made, with an ROI of 100% in 1 week where you can invest 100 rupees and get only 45% returns, which makes it INR 145 which is better than that 100% of my petty corpus. The point is – to keep the base bigger.
Next, the maximum of your wealth gets compounded at the end of the time, meaning 1st year will bear peanuts while the 40th year will get you a money tree which means compounding is only okay from a long-term perspective. Stop dreaming about the corpus at the age of 75, because you will need that money many times before you reach that far. Invest big and goal-based to be on the right track.
7. A car loan is a bekaar loan.
Cars have been one of the most depreciating items that man has ever purchased as a symbol of luxury. However, we do not say that we should not buy a car here. Buy one. In fact, buy your favourite one and flaunt it, but not on credit. It will put a big dent in your financial system and will take up too much of your time and money to recover. Don’t let the show-off for society ruin your sleep at night. Remember to get a loan for only those things which will make money for you in return today, or tomorrow. Buying stuff on loan – Cars, Phones, Vacations etc is a symbol of desperation.
8. Don’t believe personal finance till you are convinced.
Set your own checks to assess any schemes by doing heavy research before any investment. You need to convince only one person in your life about the decision you are making, and that person is the one in the mirror(avoiding lying here). Once you are honestly convinced with why not or why do you want to do something with your money, you will be able to convince your family and if not, they proved they are better, just learn from them till you win, and embrace knowledge with humility. In the market, do not Fake it, till you Make it!
The series is quite long but we try to keep it short as personal finance has to be interesting enough with fewer points and more takeaways!
Let us know if you like more of such content and we will get back with deeper insights here. Don’t forget to subscribe for more!
