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The 5 Most Important Things You Should Know About Personal Finance

Introduction

You must have noticed that some people always have sufficient money to meet their financial liabilities while a few others struggle to get through the last few days or months. You might be wondering how it is possible? You might be thinking that maybe he or she would be having better salary or income. But it is not true. It is not about the paycheck but the management of funds. Always remember that effective financial management is crucial for the good cash flow. There are ready tips related to personal finance for beginners online shared by experts. It can help plan your financials within your budget and make the most out of your income.
You cannot deny with the fact that if you do not plan your personal finances in your early twenties or thirties, then definitely you are going to experience hard time and struggle to meet your varied obligations in your life. There are many things you can do to enjoy free cash flow all the time. The importance of personal finance is limitless, and we need to understand it. Here we are going to discuss about the 5 Most Important Things You Should Know About Personal Finance.
Read through the content carefully. It will help you a lot and do a better financial planning.

Below are the key aspects of your personal finances:

• Document your earning and spendings

• Disciplined Saving

• Investing

• Reinvesting

• Financial security

• Tax planning

• Retirement planning

• Diversify your investment portfolio

Below we will discuss in detail the top 5 aspects of personal finances:

Number 1: Disciplined Saving
Life is uncertain and so the need for money can arise anytime. There can be several unexpected reasons for money like loss of job, sudden car breakdown, medical emergency, etc. So, there is the need not only for saving but disciplined saving. It means you need to seriously follow and maintain your saving schedule. Generally, the fund for emergency need should be the amount equal to your three to 6 months saving.
There are certain options that can help you meet your emergency fund needs like a fixed deposit in a bank or with a NBFC. Debt instruments such as Liquid Funds can prove to be a good choice. Disciplined saving help you deal with emergency situations and enjoy free cash flow. The personal finance for beginners is of utmost importance and should be taken seriously if you wish to take the advantage of hassle-free cash flow in your life.
Why prefer liquid funds?

• These funds are considered the best for its high liquidity feature. You are allowed to withdraw your invested money any time after seven days.

• Liquid funds are known to offer you a bit better return in comparison to your saving account in a bank. Remember that there is no guaranteed return in liquid funds.

• Your investment in liquid funds is considered safe as they carry negligible interest and credit risk.

Number 2: Commence Investing
At many times, we waste our precious years thinking or planning for saving. Experts say it is better to start saving early. The early you start your investment journey the better you yield and at an early age. Saving and investing are two different things. People very often get confused when you need to understand saving is keeping a particular amount aside to meet unexpected need of money while investing money is buying or putting your money in bonds, shares, mutual funds, SIPs, and other options to ensure your money grow.
If we talk about investment instruments, mutual funds are a good option to make your money grow with less risk. It can help you earn better return if managed well. Bonds are a safe and preferred investment option for risk-averse people. It is known to offer fixed, stable, and predictable income with minimal risk. Also, you can choose to buy bonds of your choice from the many types of bonds available for investment on online platforms like bondsindia.com and others. Some funds or investment avenues are more productive while a few others are less productive. The return on your investment depends on several factors like duration, type of investment option, and principal amount. So, you can plan your financial goals keeping in your mind your long-term and short-term goals in life.
Read carefully to understand better a few good options below:
• Short term goals
Short term goals are the goals that need to be achieved within three years. You may need fund to buy a phone, a two-wheeler, a watch, or a jewellery and the same comes under short-term goals. the best options for it can be ultra-short-term funds, liquid funds, fixed deposit, and corporate bonds with short duration maturity.
• Mid-term goals
Mid-term goals can be the need of funds within three-to-five-year duration. For example, arranging down payment to buy a house, to buy a car, and more. The best investment choices to achieve your mid-term financial goals can be Short Term Debt funds, ELSS, Hybrid Funds, etc.
• Long term goals
The crucial events of life like education of your children, marriage of your kids, buying a house, and retirement comes under long term plans and for the same long-term financial goals is necessary. The early you start, the sooner you enjoy the returns. The period above 5 years can be considered long term. Some of the best suited investment avenues can be bonds, life insurance, SIP, large cap funds, multi cap funds, NPS (only for retirement), and more.

The below table will help you enhance your knowledge about financial goals:

Number 3: Financial Security
Since life is uncertain, it is necessary to secure your family financially. Everyone has certain dream in life and liabilities to fulfil. For the same, we go for different investment plans but protecting them with a safety net is vital. The safety net is none other than insurance.
Let us understand the major type of insurances for a better decision.

Types of Insurance

• Life Insurance:
It is a kind of insurance type that not only provides you insurance coverage but also the return of sum assured along with bonus accumulated in terms of interest paid back on maturity. The maturity periods. Life insurance product, and the insurance company can be chosen on your personal preferences.
The popular companies selling life insurance in India are LIC, Aegon Life Insurance Co. Ltd., Aviva Life Insurance, Bajaj Allianz Life Insurance, Bharti AXA Life Insurance, Birla Sun Life Insurance, Canara HSBC Oriental Bank of Commerce Life Insurance, and DHFL Pramerica Life Insurance.
• Term insurance
Term insurance is the life insurance product that features higher sum assured with less premium. It can help you cover your financial obligations in your absence. The claim in case of term insurance is paid to the nominee only if the life assured dies ither naturally or in an accident. It generally does not pay you any survival benefit. It can help you meet the family need of children education, marriage, home loans, retirement corpus for nominee, etc.
• Health insurance and Critical Illness insurance
Medical care today has become very expensive. Any critical illness can ruin a family’s budget. The cost of treatment, medicines, and other expenses can disturb your budget and make you helpless. Having a health insurance and critical illness cover can help overcome the burden of heavy medical expenses. Some medical policies also provide the benefit of pre and post hospitalisation. Thus, insurance is important part of your personal financial planning today.

Other insurance types

Personal Accidental insurance, Mortgage Protection insurance, general insurance is among other insurance types that have their own pros and cons. The claim amount is subject to certain terms and conditions. Insurance products thus act as a shield again uncertainties and are an important part of personal financing.
Number 4: Tax Saving
Income tax is mandatory tax. In case you fall in the income tax slab you are supposed to pay the amount on your taxable income. There are many investment and purchase options that can help you reduce the burden of tax. The knowledge about the same can help you plan your investments. You can take the advantage of about 70 exemptions and deduction options to lessen your payable tax amount.

Popular sections in India for tax deductions:

• Section 80C
Section 80C in India is the biggest pool for tax deduction. You are allowed to claim a deduction up to Rs. 1.5 lakh for varied expenses and investments made under the above section of income tax. A few of the instruments for the tax saving are NPS, ULIPs, Sukanya Samriddhi Yojana, children’s tuition fee, 5-year tax saving FD, EPF, PPF, NSC, life insurance premium, ELSS, Senior Citizen tax saving instrument, home loan principal amount.
• Section 80D
You can claim deductions for the premium amount paid for self and your health insurance policy of your family undersection 80D.
Apart from the above two popular sections, there are more options to lessen your taxable income.
Number 5: Diversification and Retirement planning
Retirement planning is also vital to enjoy your golden days. You can invest your money in retirement plans considering the corpus you wish to generate for your happy retirement. If you wish to reduce risk on investments, it is better to have portfolio diversification. It is the diversification that can help you minimize your risk and increase return on your investments.
It is the smart personal financial planning that will aid in the effective use of the available fund or saving. It can prove useful and avoid financial struggle in life. You can explore online or consult financial planners for some of the best retirement plans.

Conclusion

The above detailed information about personal finances will certainly help you enjoy easy cash flow within your limited income. Having control on your expenses, managing funds, work on increasing your income, and effective financial management is essential for every individual.
Today there are many sources and experts to guide you and help you with personal finance for beginners sometime at no cost. So go ahead and take the unlimited advantage of personal finance.