6 Ways To Take The Headache Out Of Your PERSONAL FINANCE

Are you overwhelmed by the amount of complex information and terminology related to personal finance available on the internet? It is as hard to filter the understandable points out of intricate data as it is to know the secret strategy to acing your personal finance game

Making the most of your income and savings requires becoming financially literate. However, even in the most literate state of India the majority of those surveyed 89% said that young adults need to be educated about money. Personal finance is an essential component of balancing your ongoing financial needs as well as future financial planning, which is crucial. 

Managing your money can be frustrating when you don’t know what to do or where to start from. There is an uncomplicated, step-by-step guide to follow for you to make it easier. but before that these are a few signs one should look for, to know if they are dealing with poor financial management which can be as followed. 

• You constantly need to borrow money. 
• You have a credit card near or above the limit. 
• You pay a checking or debit card overdraft fee.
• You use credit card checks and cash advance to pay bills.
• You were rejected for a credit card or loan.
• You are Hiding your financial situation from others.

Your relationship with your money

From the very start, we have been taught that money is evil and that wanting more money is bad. This is the reason why some people make a self-fulfilling prophecy that money is hard to come by and set their financial limits. This belief can make you act accordingly to prove it true, and sometimes it may even happen subconsciously 

Another myth which needs to be unlearned is Wealth makes you greedy because money and greed do not always go hand in hand; instead, most millennials contribute significantly to the world’s environmental and health crises

For instance, in times like COVID, many wealthy billionaires donated to pandemic relief, like Jack Dorsey, Bill Gates, and more. Money is a tool and an energy source that can be used for good purposes.

You must have heard this saying that money cannot buy happiness, and it can be true for a person who is lonely with a lot of wealth, but for a common man, money can buy all the happiness, at least all the materialistic wants of a person. 

Money allows you to make your own choices. It gives you the freedom to take care of your loved ones better, it can fulfil your wishes as well as the wishes of those you care about and provide yourself with a better lifestyle but most importantly, it gives you the confidence to embark on that trip you had been considering taking with your friends when you are burned out from work and your busy schedule.

It is really important to have a positive mindset about money and a good financial relationship to educate yourself more about how to benefit your long-term plans. Use your hard-earned money as an asset to make money out of money by investing. But this needs a better understanding of money and the psychology behind it. Understanding the psychology of money to manage your personal finance better.

1. Utilising your income wisely

Income refers to a source of cash inflow that a person uses to support themselves and their family; it can also be referred to as the money that is received by an individual or organization in exchange for their labor or investments. It can be in many forms, like…

• Salary
• Bonus
• Hourly wages
• Investment
• Income from rental property
• Pensions and social security

Most people define their income as their total earnings, which include their wages and salaries, investment returns, pension payments, and other receipts.

“Income” in the context of a business includes revenue from sales of goods and services as well as any interest or dividend payments made on the firm’s cash and reserve accounts.

Income plays a huge role in our lives because it decides the type of lifestyle we can afford and what futuristic financial goals we can achieve practically by planning and executing while keeping inflation in mind. Financial literacy is rapidly spreading in India thanks to social media. It was one of the main factors driving the increase in investment during the pandemic

You can increase your income by putting effort into learning new skills and doing something you’ve always been passionate about as a side hustle. These days, many youngsters are choosing to be entrepreneurs and choosing extraordinary careers like freelancing, where they can be their own boss and work under their own conditions. They also discuss about personal finance more actively with others to know what is the best.

So, if a person isn’t young enough to start early, is it too late? No! You can use your money to establish a passive income for yourself that will generate income from a single investment for the rest of your life, regardless of where you are in life.

• Create a course: This is a method of earning passive income by producing an audio or video course, so you can sit back and watch the money come in.

• Write a book or an eBook: This can be a good opportunity to share your knowledge and experience, and since writing an eBook requires a low cost of publishing as compared to physical books, it can be relatively short and cheap to create. 

• Selling digital products: The best thing about this is that they have substantial profit margins; the asset only needs to be created once, and your online business can sell it repeatedly and make a profit out of it.

• Investing in stocks: You buy shares of a company when you invest in stocks and receive payment (or dividends) from the company on a regular basis as the value of those shares increases. Your earnings increase as you buy more shares.

• Investing in rental properties: Real estate investing is the prime choice of all because apartment complexes, homes, offices, and other real estate can all be purchased and rented out. You’ll be able to receive a monthly rental income.

• Rent out your home’s spare rooms: By collaborating with a rental company like Airbnb, Vrba, Agoda homes and booking.com you can rent out your existing properties this can be really helpful if you have a spare space in your property 

2. Budgeting makes your personal finance stable 

A budget helps in creating financial stability by tracking the spending and having a plan of action to promptly settle the bills and debts, it can save you from loose spending as you trace your money while making a budget 

The benefits of making a monthly budget for yourself are..

• It helps you control your spending 
• You can track your expenses 
• It helps you save more money 
• You make better financial decisions
• You become prepared for any emergencies  
• You can get out of debt easily 
• You stay focused on your long term financial goals 

Without a budget there is no holding back and you spend beyond your financial boundaries which can be an issue at the end of the month when you run out of money for example, do you really watch all those 500 channels on your television or those OTT platforms and multiple streaming subscription you buy every month 

A budget not only aids in achieving financial freedom and independence. However, a budget can help you achieve your financial objectives, live within your means, save for retirement, create an emergency fund, and track your spending patterns.

The essential component of good financial behavior is financial contentment, it helps you in spending sanely and enjoying your financial journey also saves you from feeling financially overwhelmed by living on a budget 

A physical budget is important but why a physical one? When you put efforts into writing down all the expenses, you subconsciously reverse engineer your goals and recommit to your goals, you develop a clearer vision or path to achieve them

Making a budget is definitely not a rocket science it is as easy as following your daily routine, when you create your own budget you untie many blindfolds and see how most of the people are living pay check to pay check buried in debt, barely making ends meet and are always in huge stress due to bad financial situation 

3. Spending money through purpose identification  

Spending in simple words is to pay for goods, services or to benefit someone or something we spend money to access the style of living we want, it can be as big as buying a car to as small as choosing the colour of your wall, spending with a plan can change your life in a positive way and it can also make you more organised. 

50/30/20 Rule: This golden rule of personal finance can be useful while spending, which says you should spend 2.5% of your after-tax income for necessities, 30% for wants, and 20% for savings and investments with that you should ask yourself a few questions before buying something to prevent excessive and unnecessary spending that you may regret later.

The first question to ask should be why are you buying ? What is the reason behind this purchase is it because of your EMOTIONS, WANTS, NEEDS OR ENVIRONMENT.

• Spending due to an emotions: spending in reaction to an emotion is not always helpful and can cause budget misbalance which can be buying an expensive instrument out of boredom you will not use eventually or going out for retail therapy when you are feeling sad that’s why you should know why you’re buying 

• Spending for your wants: your wants can be going out to watch a movie, eating out in a fancy restaurant or travel to a different country, which is necessary too for the sake of your well being after all you deserve to fulfil your wishes but you should not spend in excess for your wants, it can even be skipped in financial emergency.

• Spending for your needs: your needs can be the electricity used for appliances, the food you eat, the rent you pay to live under your roof and the water you use, all these are one’s basic requirements and cannot be ignored at all.
• Spending due to environment: this can be the pressure from your peers, group or society you are in, that impacts the kind of spending you do, you may not really need an iPhone but you have to buy one out of influence of others 

The most important part of spending your income is you should never make decisions out of emotions and commit to something that does not compliment your financial situation, you should keep a tab on how much money you’re spending and how much money you’re saving at the end of the month, this way it will be easier to identify if there is any loose spending happening or not, it also gives you opportunity to think about your decision again. 

The second question is The 24 hours rule that says if your purchase would still be valid after 24 hours or even in a month’s time, if the answer is yes then only you should buy it   

The third question is rather than comparing the amount of money you spent to the value of your purchase you should compare the number of hours you put in to earn the money you are spending, this way you can become immune to binge shopping and excessive spending

There are five more things to keep in mind to spend sanely and save more money. 

1. Pay off your debt as soon as possible: If you have debt, you should pay it off by reducing your wants. Ignoring debts can cause you to fall into a debt trap and make it difficult to reach your financial objectives.

2. Refrain from paying your bills with credit: It is sure an easier way but it also adds up to your monthly payments for future 

3. Reduce or downgrade your services: You can get a less expensive cable option or even go without it. If you use a cell phone, think about getting rid of your landline.

4. Make a list of your financial priorities: Your financial priorities can be buying a car to save on the transport or buying yourself a home to save on the monthly rent, having a financial priority helps in controlling the over spending and saving money 

5. Avoid making a low-cost purchase that will cost you later: Don’t buy cheap clothes from cheap sales, you may buy it for cheaper than usual but is it going to be wearable in the long run as the usual ones or you have been paying double for the same this whole time unknowingly.  

4. Saving on autopilot mode

What is saving? In a simple language money saved is money not spent. Saving is a strategy for setting aside a portion of current income for use in the future, or the resource flow collected in this way over a specific period of time.

If you are someone who does a lot of unplanned shopping, never keep a log of your money starting saving can be a little difficult for you when you have to resist yourself from buying something that you might not use right now but you like it and probably that’s why the first advice people give about personal finance for beginners is to start saving

because of this your saving journey starts from when you learn to differentiate between needs and wants until gradually you do it subconsciously without even knowing and putting efforts but remember one step at a time. 

Anyone can start from scratch with small changes that will matter after a period of  time. You just need a little observation to look at how good you are at managing your personal finance, whether you are using your resources sustainably and what more can be done to save and use it optimally. 

• Pack a lunch for yourself: packing your lunch will save you the money you spend on ordering food and it will even benefit your health to eat a homely healthy lunch.

• Try to cut your energy costs: by checking your day to day behavior, switching off the lights when not needed, using LED bulbs which consume 25% to 80% less electricity than traditional bulbs and installing energy efficient appliances.  

• Reduce your takeout orders: ordering a pizza doesn’t take a lot of time or effort to save yourself from starving specially on weekends when you feel too lazy to cook, it just costs somewhere around 500 but when calculated annually becomes 25-30K. 

• Decide your meals and stick to it: early meal planning will not only save you from your impulse food choices but it also saves money and time. 

• Inquire about special offers, promotional codes, and cashback: negotiation and simply asking for discounts or special offers if available can save you enough while shopping and buying something in large quantities after all there’s no harm in asking.   

Most of us from childhood have seen our mothers being the finance minister of our homes they do the budgeting for all of our needs and even save from the monthly expenditure of the family because they believe in “ Start small think big ” by saving a little amount every month it becomes a huge saving in the end of the year. 

They even keep the money separated for particular purpose using them like small funds which can be the cereal boxes, closets or the hidden kitchen cabinets, there are always plenty of spots at every home to keep your money hidden by being a little creative, if you observe it closely you can take a lesson and make your own small funds 

Here is a list of ways to save your money in a feasible way

• Buy assets over liabilities always: buying a second hand gadget and paying for the maintenance often can be painful because you have to invest again and again to use it while buying a brand new gadget with one time investment can profit you in long term this is why one should always buy assets over liabilities. 

• Pay off monthly credit card in full: piling up payments can become huge debt and difficult to get rid of so paying off consistently on time can help you stress less.

• Consider registering for online bill payment: the best way to deal with the bills is to install an automatic option to pay all the bills in a snap as soon as you get your salary so you don’t forget any bill or worry later when you are left with no money.

• Make sure to only use the ATMs of your bank: it may be no big deal using other bank’s ATMs in an emergency but when you observe this behavior from a bigger perspective you will see how much money you are losing with this small habit.

• Early retirement planning should be your top priority: starting early can save you from regretting later and struggling for money in old age. Prioritize planning your retirement while you’re still young because your savings will earn more interest the longer you save.

5. Power of compounding in investing

In terms of personal finance, investing is the process of acquiring an asset with the intention of making a profit later on, increasing the value of that asset over time. 

Investment is like buying an asset which works as a liability for others to generate you regular income or increase its worth with time to benefit you to pay loans, children’s higher education, create an emergency fund and save for your retirement. 

The power of Compound interest is that it accelerates the growth of your money because it calculates interest on both your original principal and the interest that has accrued over time, this is the reason why most people invest heavily in stocks, bonds and real estate.  

Your savings will grow more quickly the higher your initial investment and investment return. And over time, it really does add up. By putting your money to work so you don’t have to, early and frequent saving can help you take advantage of compound growth. 

But keep in mind that high returns come with high risks. You will typically need to take higher risks if you want a high return on investment. Your investments can be protected by diversification because it can disperse that risk. Be cautious of get-rich-quick schemes and don’t expect anything for nothing. Everyone would be practicing them if they were actually real. If something seems too good to be true, it most likely is.

There are many ways to invest money, so saving your income alone is insufficient. Put your money to work so it can grow over time, here are few of them 

• Gold: the value of currency changes from time to time due to inflation but keeping your money as gold or gold bond can be a safer choice while paper gold is another option for owning gold. Investing in paper gold is more affordable and is possible through gold ETFs. Such trading involves purchasing and selling gold, which is the underlying asset, on a stock exchange (NSE or BSE).

• Real estate: most people buy property with the intention of living in it but when they choose not to it becomes an investment and an asset for a steady stream of income from just a single investment you get to earn from it for the rest of your life. 

• Fixed deposit (FD): a bank fixed deposit (FD) is even safer than equity and mutual funds in India, With effect from February 4, 2020, each depositor in a bank is insured up to a maximum of Rs 5 lakh for both principal and interest amounts.

• Public provident fund (PPF): you will get a compound of tax free interest and it has a 15 years long tenure. The government evaluates the PPF interest rate on a quarterly basis.

• Direct equity: investing in stocks can be scary to some because there’s no guarantee of returns and it’s a volatile space to invest in whereas direct equity delivers higher than inflation-adjusted returns you just need to open a Demat account to invest in direct in equity without going through a hassle of choosing the right stock to invest. 

6. Protection in all aspects of personal finance

Protection of your personal finances is a crucial part while managing other aspects of your financial journey and it needs attention because you never know before things go wrong, you can always consult from a personal finance advisor before taking a big financial decision you are not sure about, while we talk about protection it does not necessarily mean just your wealth but your health as well or any sudden emergency that may occur in your family.

Protection has broadly three aspects which everyone should make sure they keep in check whether its an unwelcomed disease, before or after care of one’s demise.

• Health insurance: this is an insurance covering your medical expenses in an emergency due to any illness relating to the price of prescription drugs, hospitalization expenses, or physician visit costs.

• Life insurance: this is a contract that works between policyholder and the insurance company ensuring to pay a sum of money in return for a premium, either upon the demise of an insured or after a predetermined amount of time.

• Estate planning: this basically involves preserving, managing and distributing all one’s assets after their demise, naming an executor and beneficiaries with a legal document that specifies how an individual’s assets and, if applicable, custody of minor children should be managed after death. 

Apart from this you should have an emergency fund and pay yourself first by Setting aside a small amount money from each paycheck for unexpected emergencies and long-term goals before paying your bills, buy insurance and guard your health, health and life insurance can protect you and your loved ones from financial hardship in the event of accidents or illness.

The Takeaway

Managing your personal finance is a responsibility which shapes your present, past and future that is why it is necessary to make sure you are putting efforts in using all the knowledge you have and learn more about ways to upgrade and update your habit of controlling your income by budgeting, spending, saving, investing and protecting to be on a safe side in an emergency and never go through tough time dealing financial issues 

Your money mindset decides your potential of being more wealthy and understanding the psychology of money and the power of manifesting by using the right ways to profit your finance with your current income, spending reasonably and saving to buy assets to invest them for others to use it as a liability which will make you more money with one time investment for the rest of your life  

Understanding the Time Value of Money, or the idea that your current wealth is more valuable than it will be in the future due to its earning potential, is of the utmost importance. Financial literacy requires an understanding of the time value of money. You can use this approach to manage your finances in a number of different areas, including savings, investments, purchasing power, and more.

Lastly protecting yourself and your loved ones in hard situations by making sure of having a plan for any kind of mishappening and illness and this will happen when you’ll gain the knowledge to overcome any fear of unexpected, when you learn and you know what pitfalls to look for you become more aware through the process.