What Is Financial Awareness?
Financial awareness is the ability to manage your finances. This includes learning responsible ways to pay your expenses, borrow money, and save money. If an individual is not careful about managing his/her finances, how much ever they may earn, they will always end up spending more. Hence, to bring financial stability, financial awareness is a must.
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Financial literacy is essential because it equips us with the skills and knowledge we need to manage money efficiently. Being financially literate can improve the standard of living through an increase in financial stability.
Benefits Of Financial Awareness
The benefits of having financial literacy are given below:
- Capacity to make wiser financial choices
- Managing finances and debt effectively
- Better suited to achieve financial objectives
- Lowering costs through improved regulation
- Less anxiety and stress related to money
- An increase in moral judgement when choosing investments, loans, insurance, and credit cards
- Creating a planned budget with efficiency
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Importance of Financial Awareness
Making the effort to improve one’s financial awareness is a crucial life skill that can guarantee financial stability, lessen anxiety, and encourage the accomplishment of financial goals.
Below are a few crucial financial management factors that might aid an individual or business owner in making short-term and long-term plans.
Make a budget
Making a budget is one important way to create a true understanding of your income and expenses. Once you have a budget, you can track your spending. You must also review your plan regularly. There are many budgeting methods. The most common is the 50/30/20 plan which says you must spend 50% of your income on necessities, 30% on lifestyle and 20% on saving. Choose the one that you’re most likely to stick to.
Keep away from debt and bankruptcy
A crucial way to prevent debt from building is to create an emergency fund. A financially literate saver knows how much to set aside—ideally three to six months’ worth of expenses—and aims to keep it at that level at all times. Another point is that a financially aware individual knows how to get loans at the lowest interest rates and pays credit card balances each month so that they don’t accrue interest charges.
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Have a diversified investment portfolio
There’s an old saying, “Don’t put all your eggs in one basket”. It’s actually a smart piece of advice when it comes to investments. It means you should have a diversified investment portfolio. You should not invest all your money in one tool. Spread it over the various investment options available depending on your age, family situation and future goals. Property, mutual funds, shares, gold, FDs, government saving schemes – these are all best investment alternatives.
You might stand to benefit a lot if you include Chit funds in your portfolio. They are actually an instrument of regular monthly savings with the added advantage that the depositor can withdraw their entire investment at the time of their need, any time during the investment tenure. No penalties, no hassles. Choose a digital, online, registered Chit fund platform like The Money Club where you can expect to gain about 7-9% returns on your investment with absolutely no risk.
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Money Management Tips For Entrepreneurs
Below are a few money management tips for entrepreneurs:
Set long-term and short-term goals.
It is essential that you create short-term and long-term goals. Try to make goals that are precise, measurable, appropriate, achievable, and time-based. If you keep accomplishing your short-term goals you will be motivated to complete your long-term goals. At the same time it will give you the positive feedback that you need to continue striving for your goals.
Plan for your working capital
Most company surveys in the current crisis note that a working capital shortage is the primary factor contributing to the failure of small and medium-sized businesses. It is mandatory to fulfill all established responsibilities, such as salary, bill payments, loan EMIs, and tax duties.
Once again, you can get help from chit funds to meet your operating capital requirement. If you are used to using an overdraft, a chit fund might be a far better option for acquiring operating capital. This is due to the fact that when you opt for an overdraft, your monthly payment just covers interest. In contrast, if you use a chit fund arrangement, your monthly contributions will cover the principal and interest even if you withdraw the entire amount early.
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Keep your personal and professional finances separate.
It’s crucial to maintain a firm separation between your personal funds and those of your business. Create a distinct bank account in the name of your company. Keep separate records of your business costs. For maintaining your balance sheet and creating your profit and loss statement, it is necessary. By demonstrating valid company expenses, it will also assist you in claiming the applicable tax exemptions. Additionally, you must be careful to submit both your personal and business taxes separately. You can then assess your profitability in a simple manner. In this way, during a loss, your personal financial situation will not be adversely impacted by your company’s liabilities.
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Prioritize your necessities
Be practical in identifying what spending is necessary and what expenses are optional. Spending money on things that will ultimately help your business develop, such as raising the quality of your products, accelerating customer deliveries, or boosting staff wellbeing, is a good idea.
While the firm is still new and unproven, investing in posh office space, paid marketing, or celebrity endorsements may not be beneficial. You don’t need fancy office and furniture and all of that, especially in the beginning. You can always consider these extra expenditures to support expansion once the good consumer reputation of the products/service is established.
Monitor your plans regularly
Making big plans at the beginning is fine and great. However, you need to periodically compare the actuals to the plans created. Only then will the motive of making a plan be achieved.
How To Raise Capital For Your Business Using Chit Funds
Despite the fact that Chit Funds have been proven to be a successful model in many Indian states, it is less likely that if you run a SME (Small and Medium Enterprise) and need to raise cash, you have never given this option much thought. Chit Funds are a low-effort, low-investment way to make money. It is an informal and efficient way of savings and finance where the traditional banking system cannot. There are several rules created by the states and the government that regulate chit fund activity.
For both short and medium term financing, chit funds are suitable.
You can invest some of your current profits in a chit fund plan in order to meet your medium-term goals, which might be 2–5 years away. When you require capital two years from now, the lump sum will be available to you. For plans with a longer duration, you can reinvest the money for additional terms.
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When you keep the money and don’t take any withdrawals until the end of the term, your investment will earn a respectable return of 10%-15%. In the event of a financial emergency, or for any short term goal fulfillment you may withdraw your prize money at any time over the course of your investment, with little to no paperwork and continue making monthly installment payments. You will not be under the burden of high interest, such as that associated with credit instruments like taking a loan.
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