Personal Finance: The Science Of Money Management


Personal finance is the system of regulating finance of a person or a family. In simple terms, personal finance is the way an individual or a family earns and makes provisions for spending and investing. Personal finance is planning all your monetary resources over time while taking into account events of the future, risks, your financial goals and intelligent allocation funds to meet those goals (Investment). The key components of personal finance comprise savings accounts, salary account, personal loans, consumer loans, credit cards, insurance and investments.


Critical Elements Of Personal Finance

Watch Your Cash flow - The most important part to be successful at money management is to have robust cash flow. Let's understand what it really means. When you plan your personal finance you have to take into reckoning the monthly expenses like EMIs, rent, SIPs, insurance premiums, service bills, fees, subscriptions, etc. To manage all these expenses you need to have money, and after footing all these bills you need cash on hand to ensure your household functions smoothly. Hence keeping a good cash flow is the primary and one of the most crucial steps of Personal Finance.

Get A Good Insurance Cover - Insurance is an important part of personal finance. It's a tool for risk management. An adequate insurance cover for yourself and for your family helps to keep your cash flow smooth and unhindered as it provides monetary support if some unfortunate event occurs. If you are the sole earner of your family then you should have a term insurance of an appropriate cover for yourself and health/medical cover for yourself and your family. However important insurance may be, never make a mistake of looking at insurance as an investment instrument. Insurance is only to mitigate the risk of the unforeseen events of future. All the moneyback insurance policies that are projected as investment mediums don't give good returns.

Plan Your Taxes -  Make sure you plan your taxes well in advance. Most of the people make the blunder of investing in tax-saving plans at the last minute. Investing in haste not just beats the purpose of tax planning but, most often, induces you to sign up for wrong and unproductive investments. As a smart investor, it is your responsibility to reduce your tax liability by making good use of all the tax-saving provisions prescribed by Income Tax Act. Your best foot forward is to choose the best tax-saving scheme that not just helps you save tax but also bring handsome returns. As tax is a difficult subject to comprehend, it's wise to take help from your tax advisor to plan your tax and stick to the plan throughout the year.

Debt Management - If not planned well, the debt could grow into a big hindrance in reaching your financial goals. Debt is a complex matter, everyone has to take a loan sometime or other. In a way, it is inevitable. But then it becomes important to see to it that we do away the debt burden as early as possible. Always be disciplined in paying your loan. It serves two purpose - you lessen your liability and timely repayment boosts your credit rating. As mentioned earlier that sometime or other you have to opt for a loan, the best way is to get the loan at the lowest interest rates. Personal loans have high interest rates while gold loans have a relatively lesser interest rate.

Savings & Investment - The final frontier of Personal Finance is saving and investment. The very objective of you planning your finance so carefully is to achieve your end goal - wealth creation. Saving and investing are the means which will slowly but steadily take you to your long-term and short-term financial goals. For all your short-term and long-term needs you need to invest in investment instruments which give best returns. For a retail investor, there are various investment mediums like real estate, gold, mutual fund and equity investment to choose from. Choose the right investment medium and be disciplined in investment.


Sounds Difficult? Ask The Expert

Personal finance has all those elements that people like to stay away from. It talks about investment (stock market, mutual fund), tax, insurance, monetary discipline, etc. which people generally find boring. Hence, to be in control of your personal finance, you can approach a licensed financial advisor or a wealth manager for support. As discussed above, the most critical feature of personal finance is the investment, it can become rather tough for a novice to find his/her way through the abundance of funds, stocks, schemes, etc. A certified financial planner or if you want to invest in the stocks, a stock advisory firm, can bring great value to your investment portfolio. Always remember, paying for a valuable advice is also an investment.