Top 6 simple personal finance practical tips that everyone should know!

Personal finance is like riding a bicycle. If you can balance certain things, you can definitely have a great life ride ahead.

Financial literacy is one of the most vital skills that everyone should master once they started earning.

In modern India, there is hype for personal finance among millennials these days. Millennials are more concerned about making money and managing money.

One in every three Indian professionals is now optimistic about their personal finance (source: financial express) 

Personal finance is all about managing and investing your money throughout your life for future needs and wants.

Why Personal finance is important?

When you begin to earn, money will flow into your account.

Your income will flow like water, you will end up in water scarcity, if you don't know how to save, and spend that water wisely.

Similarly, if you spend all your income without saving and planning, you will end up in poverty and can't grow further financially!

"Formal education will make you a living; self-education will make you a fortune ,"- Jim Rohn.

Formula education won't teach you about money management and investing skills, but these skills, play a significant role in any man's life.

 Let us dive into some practical steps to master your personal finance skills!

1. Make a plan, set goals:

With money, don't go blindly. Invest it only after knowing the fundamentals and spend it only after knowing why you do.

Having a plan is important no matter what you do. Set daily, weekly, and monthly goals for spending and saving money.

Make a savings plan every month, even if it's a small amount, try to put in a Systematic investment plan (SIP) or a Mutual fund (MF). 

Set long-term (over 3 years), short-term (6 months), and midterm (1-year goal) goals for saving and investing money.

Pro tip-Start as early as possible, you'll see an enormous difference in the ROI (return of investment) of money.

2. Track your money:

Tracking your expenses and savings must be a habit more than a goal, which will give you a clear-cut goal of where you are spending more and how you can reduce it.

Start tracking your expenses and categorize them into; Fixed expenses (constant expenses & recurring) and Variable expenses (changeable& non-recurring) as shown below;

Types of expenses with examples

While categorizing, you will get an idea of where most of your income is going. So that you can minimize your extra spending.

You can use a money tracking app or you can also use a simple excel sheet to track your expenses.

Spend within your earnings. Have a budget for your expenses and savings. Try to spend 10 mins each day to revisit and record all your spending.

Pro tip- People usually follow 50% Needs, 30% Wants, 20% Savings budgeting rule.

If you are in debt, you can follow 70% Living expenses, 20% Savings, 10% Debt.

3.Take a medical plan:

Health has become the most important priority now than ever. Life is so uncertain, we didn't have any guarantee for tomorrow.

Having a backup plan for your health is much more necessary in this 21st century.

Because even a few days of hospitalization might cost Lakhs. If you didn't have any medical cover at that time, you will lose your loved ones for not having enough money to pay for the treatment.

You can't give a second thought when it comes to health, Right?

It's better to have a health insurance premium, which will be helpful to overcome health risks and medical emergencies.

You can also look after health covers for your family members and elderly people to meet their medical expenses.

Pro tip- Allocate a specific amount in your income for paying a health insurance premium.

4. Set up an emergency fund:

Unexpected emergencies will always arise, it might be in the form of natural disasters like floods and earthquakes or you might lose your job, & an income stream.

In those difficult situations, neither you can go for loans nor borrowings to satisfy your necessities. It is up to you how prepared you will face those circumstances.

You can build a fund to take care of 6 months of your expenses. To meet all your emergencies and basic living expenses.

Instead of holding money in hand, you can save it in your bank saving account, but these are subject to inflation.

If you want to escape the inflation trap, it is better to move with a fixed deposit and liquid funds to get high returns compared to the ideal cash in your savings account.

Pro Tip- While setting your emergency fund, make sure it is easy to withdraw anytime, without any complex contracts and time bonds.

5. Don't fall into traps:

Technology around us is rapidly transforming. New items are reaching the market every day, and it is hard to stay stagnant with the old technology. 

Upgrading to those new gadgets seems like social status in society. But millionaires and billionaires will never fall into these 'Lifestyle inflation traps'

"Too many people spend money they earned, to buy things they don't want, to impress people they don't like." ~ Will Rogers

Lifestyle inflation means buying expensive things which are not needed. Some examples of lifestyle inflation are upgrading your car, mobile phone, and watches to current trends.

Avoid debt traps. Debts mean money that you are obligated to pay others for the benefits you received.

Repaying some debts seems to be a long-term process. Some examples are EMI, Housing loans, Car loans.

Pro Tip- Limit your credit card usage and make payments on time.

6. Create your own wealth:

 These days, depending on multiple income streams will leave you prepared for unforeseen expenses and needs for the future.

Building multiple income streams is difficult though you can choose the easiest. With money, you can buy assets like buildings that make money in the form of rent or lease.

It is essential to know which assets are safe and which are not. Simply buy assets will make you earn money.

Creating wealth is not about having more income, it's about how you manage even a little income to make money for yourself. 

So, create your own wealth as soon as you start earning. That is when your financial freedom starts.

Pro Tip- Start small try to build wealth by doing long-term investing in stocks.

Final words:

Mastering personal finance is not difficult if you take care of these strategies.

Knowing how to manage money, learning how to budget, reducing your expenses, and strong investing mindset is a much-needed skill in today's world.

In short, have a plan, set goals, make a budget, track your expenses, take a medical plan, set up an emergency fund, avoid debt traps and create your own wealth.

"I believe that through knowledge and discipline, financial peace is possible for all of us," ~Dave Ramsey.

Finally, you have learned the most prominent skill, which will help you to stand out from the crowd.

If you have any questions about personal finance, please shoot your thoughts on this!