Before hitting bullets, I want to share a few important points about personal finance.
First of all, we must have knowledge of personal finance and how we should manage this in our life.
Why because it is involved with money and is required us at any time for anything.
At least knowing some basics of personal finance will help us become financially free and live a better life in old age.
Below are the 5 Basics of Personal Finance every person in the world should know and apply in his/her different work of life.
“Do not save what is left after spending, but spend what is left after saving.” Warren Buffet.
In the economy, saving means to keep money in the bank or any schemes either by the government or private for its later use.
Traditionally, we used to keep our gifted coins in the piggy bank whenever we get coins from the elders and closed ones, so that we could accumulate some of the coins for buying any essential things as this helps us to build the habit of saving among us.
It is safe to keep our money to bank only because it is guaranteed against loss and can use in an emergency. Saving accounts gives moderate interest on the savings also.
Saving accounts are for short-term or long-term period depends on the plan and its schemes. It is said that a short-term saving will have little disadvantages than long-term saving.
We should always think about the real return (returns that can beat the inflation) whether you keep or save your hard earned money in the bank or any high growth products, like stocks, mutual funds, etc.
Nowadays, in India, there is a number of channels to save your money and get the return from it depending on the products. You can name like stock, mutual funds, company deposits, bank fixed deposits, bank recurring deposits, PPF, etc.
“Let Not Your Expenditure Exceed Your Income.” Plautus.
Different people have different views on expenditure. Expenditure is the amount of money you spend on a thing, place, or people. It is a part of consumption that you do whether you buy any items or property.
But maintaining your expenditure is the main key here whether you spend on better resources, plans, schemes, or your future retirement. In maintaining expenditure, the 80/20 rule will help you limit your expenses and make strong enough to think towards your financial freedom.
“In any investment, you expect to have fun and make money.” Michael Jordan.
One of the most important tools in personal finance. I say investing in anything means there should be some good return from that investment, in this case, a minimum 12% on your total capital applied. There are so many resources in India for investment, but most benefited one is stock market and mutual funds (but there is no guarantee of return from these products as well. This type of investment carries risk. To invest here, you should be able to take a risk and invest).
Other traditional investment plans are gold, real estate, bank fixed deposits, RD, PPF, etc, as I mentioned in saving above.
There are two types of investment, one is a short-term investment and long-term investment.
Because of a low rate of interest in short-term investment, they are not as good as a long-term investment.
The interest or return you are gained from short-term investment does not compete with inflation and is not good for investment.
“Getting life insurance is like making a bet you can not win. If you live, you do not get the money. If you die, you do not get to enjoy the money.” Oliver Gaspirtz, American Cartoonist.
In simple words, it is the cover of risk. In life insurance, it protects financially of your uncertainty that may happen in your life. Frankly, if any loss, theft, damage, or even death comes into insured life, it ensures to protect financially to the dependant as per the term and policy.
In India, we have many insurance policies, for example, endowment plan, ULIP, child plan, term plans, etc. Out of these policies, it is said, the Term Insurance plan is the purest one.
There is a health insurance plan also and this covers all your medical expenses when you fall sick or going any major surgery in the hospital.
We need to have Health Insurance plan to pay our sky-high medical bills at the time of surgery or any medical expenses that comes out from the hospital.
There are varieties of insurance products whether it is health or life in the market today. The work we need to do here is to select the perfect insurance policy of your benefit.
“When you stop living at work and start working at living – Retirement.” (Unknown)
India is a country where most of the earning potential comes from cultivation and more than 70% of people works in the field. So these number of people does not have knowledge about retirement and do not know the basics of retirement how it impacts one’s life.
They work until their body can bear. There is no such age limit for these people in the village because there is less awareness and people never think of retirement from their work.
To the contrary, the people living in the urban area and those who have monthly salary packages, they opt for retirement plan either from a government job or private as soon as they step in 60 years of age.
In most countries, the idea of retirement is of recent origin, being introduced during the late 19th and early 20th centuries. Previously low life expectancy and the absence of pension arrangements meant that most workers continued to work until death. Germany was the first country to introduce retirement benefits in 1889.
The main purpose of retirement from one’s own work is to spend a better life after a certain age depends upon their country and be with their family and spend quality time with them.
Do you agree with these 5 basics of personal finance? Please comment below.
Disclaimer: I am not a financial advisor and expert. The above-given views are not intended for any kind of advice. It is solely the purpose of my individual opinion about the subject that I am interested in.