written by | April 25, 2022

How to Plan and Manage Your Personal Finance?

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Table of Content


Personal finance involves the attainment of your monetary objectives. This includes understanding the amount of money you have as savings, everyday expenses, retirement savings, and savings to finance your kids' education and how you can plan for these various needs practically. Every individual must plan wisely for a secure life ahead. From budgeting to savings, taxes, insurance, loans and even credit cards, you should plan the income you earn to enjoy a comfortable and stress-free life ahead.

At the onset, you should create a concrete list of priorities. If you already have one, you may want to start with investing in a house or a second house. This could be followed with your 2 to 4 years plans until your retirement phase. This type of planning will give you an insight into some areas of unnecessary expenditures, how to curtail them and how to spend money more wisely. Planning your finances does not mean depriving yourself and your family of some indulgence like an annual vacation. You can plan for such activities as well, but the moot point is you have to start planning in an organised manner. Let's understand the various aspects involved in personal finance planning.

Did you know?

94% of savings in India are in savings bank accounts and fixed deposits, and the real return (post-tax) to this large investor class, who is probably unaware of inflation and taxes, is hardly 6-7%!

Also Read: Best Ways to Save Money in India 2022

Personal Finance

The management of all revenue earned is mandatory for everyone. Most individuals find it difficult to attain financial stability because they indulge themselves constantly without a thought for the future. 

They find saving or investing intimidating because they do not understand how to invest and the benefits of savings. Personal finance involves setting short-term and long-term goals by investing in feasible schemes and financial instruments. You can do this by setting aside a specific amount of your monthly salary to make investments. You can always seek help from the finance personnel in your office or your personal chartered account. You can also seek advice from the bank where you hold an account. However, you can also add to your knowledge by understanding the various schemes or investment policies.

Reading books or even watching some interesting financial segments aired on television channels can help you increase your knowledge. There are many informative and educational videos on YouTube as well. This is important because you will understand the advice given to you by bankers or other individuals. Financial literacy plays a crucial role and helps you make the most practical choices of investments. Your sources of finance can include your salary, financial loans, investors, grants, and personal savings. Let us now explore the various areas of personal finance.

Areas of Personal Finance

Some of the key areas of personal finance are as follows:

  • Personal income
  • Budgeting or spending 
  • Savings 
  • Investments
  • Protection

Personal Income

This includes money earned in job salaries, additional bonuses, the amount received for pension, dividend amount earned on shares.

Budgeting or Spending

If personal income generates revenues, budgeting or spending involves expenses. Some of these include payments made towards credit cards, property taxes, rent, monthly bills like electricity, internet, phone recharge, travel, socialising with family or friends, gifting, and charitable donations. Some individuals tend to spend more than they earn, resulting in unnecessary liabilities. Careless indulgence increases your expenses and is a sign of poor management of your finances.

Savings

You can invest in savings in several different ways. Some prefer fixed deposits, while others maintain savings accounts with their bank, while many resorts to post-office savings in India. Some individuals save money in what is better known as an emergency fund which they resort to in dire need of cash. Mere savings of cash are meaningless unless you earn some returns on it.

Investments

Investing in the stock market has become a preferred choice in the last few years. Several individuals choose to invest in short and long-term mutual funds, government and gold bonds, equity shares, debentures, and property. Some individuals invest in commercial properties and rent the premises to regularly receive a fixed amount of money. Others invest in a 2nd home and earn rent on the same. Many invest in various commodity items as well. The elite segment of society chooses to invest in art and other expensive items. However, these are for personal collections.

Personal Protection

Several individuals prefer to invest in various types of insurance policies that help them tide over unforeseen situations or contingencies. Some of these include health, car, property, fixed assets, and life insurance.

Personal Finance Planning Process

Once you understand the importance of savings and investments, you need to implement a proper financial process.

Given below are the various steps involved in the appropriate implementation of the process:

  • Understand and identify your present monetary status: The first step is to distinguish your financial situation in the present moment. You can involve your entire family so that they, too, understand the same. You can collate all details on your fixed and movable assets, various revenue sources, outstanding debts and existing liabilities. These details will help you understand your present financial status.
  • Identify, categorise and prioritise family goals: Discuss every individual goal of your family members. List every member's goal on the grounds of priority so that everyone understands which one needs to be fulfilled and what finances that specific goal entails. This will help you segregate the short-term from the long-term goals.
  • Detect the monetary gaps: Once you understand the immediate and futuristic goals and the number of finances required for their fulfilment, you will be able to identify how much you need from your varied investments to accomplish those goals.
  • Strategise a practical and timely monetary plan: Make a good analysis of all your investments, whether in stocks or other options and find out which particular one/s will mature in sync with the funding of your short-term plans. This will give you an insight into the amount you can benefit from fulfilling your short-term priority goals.
  • Consistent review of your financial plan: You can't make a one-time financial plan and sit back. The financial plan has to be reviewed by you constantly. There could be economic upheavals and unforeseen volatility, which could necessitate changes in your goals and investments. This could delay the fulfilment of some of your immediate objectives.

Also Read: What is a Financial Planner and How to Choose the Right One?

Personal Finance Management

Personal finance management involves a well-thought-out process of consistently making savings and a practical budgeting plan to meet your varied expenses. You have to manage your revenues to set numerous goals, whether they involve financing the higher studies for your kids or investing in property or saving for your golden years. Once you have a clear idea about your goals, you will be able to manage your savings and investments in the most organised manner.

Budgeting for your goals involves understanding the amount of regular income you receive, how you allocate it for daily expenses and how much you need to allocate to achieve your short and long-term goals.

However, consistent monitoring of your goals and the financial status of the economy is mandatory. You can maintain an excel sheet and use the formula to maintain the details or use professional software. This will help you understand the amount of revenue inflows, your investments, gaps (if any), and the fulfilment of your objectives.

Conclusion

This article gives you clarity on what personal finance and its management involve. It helps you understand the significance of proper planning of your finances so that you can budget for your expenses as well as your short-term and long-term goals. Financial literacy is crucial for every individual as it allows you to plan wisely and helps you understand frivolous expenses which can be avoided in the future. Proper financial planning enables you to secure your life and that of your family members.
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FAQs

Q: What are some personal finance tips?

Ans:

Some valuable tips include:

  • Wise utilisation of returns which you earn as interest or dividends on your various investments
  • Maintenance and monitoring of your income and investments regularly
  • Plan short-term and long-term goals for yourself and your family on a priority basis
  • Ensure timely payments of all your debts
  • Plans for your retirement

Q: What is the meaning of personal finance management?

Ans:

A careful strategy of saving some money from your regular income and how to budget for your expenses is known as personal finance management.

Q: What is personal finance?

Ans:

Your personal finance includes the various sources of revenue you obtain and the amount you invest regularly. It also has how you budget for your expenses, make payments towards your insurance policies, if any, and payments towards your debts and mortgages.

Q: What is a financial plan?

Ans:

A financial plan is a well-thought-out document that lists the details of your current financial status, including your revenue inflows and cash outflows. It details the amount of your short-term and long-term goals, your current debts, and your current investments.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.