Managing personal finances can always be a massive challenge. If you do not have sufficient funds, it is challenging to build it up to meet financial emergencies. Simultaneously, it isn’t easy to manage things, even if you have more money on your hands than you need. So, the key to manage finances is to have the right mix of savings and investment and know some managing money tips. This blog looks at the various options available to you to help you in managing personal finance better.
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9 Managing Money Tips
Make A Plan And Follow It
While managing personal finances, having a clear objective and knowledge about one’s finances is an essential part of creating a workable plan that is right for you. Here, the “plan” is really just a budget that you must make and follow in accordance with your financial condition. You won’t know where your money is going until you establish a budget. Whether there is a pandemic or not, you still have to spend your hard-earned money on things like food, utilities, transportation, and entertainment. Maintaining a budget will enable you to identify your primary spending areas. Depending on whether it is a priority, you can then take action to reduce your expenditure in those specific areas. You may already be familiar with the well-known “50/30/20” guideline, which aids in budgeting. Finding a working version of this rule is necessary, though. Start small and create a weekly or monthly saving plan if you haven’t made a habit of saving a part of your salary yet.
Buy Only What's Necessary
You must have heard the phrase “Stock, don’t hoard” in the recent months following the start of the COVID-19 outbreak. Realize that while trying to appropriately store up on necessities, it’s equally crucial to avoid hoarding. You will just wind up wasting a great deal of money. Making a detailed list of the materials you will require over the course of a month is also a smart idea. Make a grocery list and stick to it after that.
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Save Wherever You Can
As mentioned in the first point, the advantage of creating a budget is that it shows you where your money is going. You can cut down spending in certain areas like eating out or ordering in from restaurants, shopping, and watching movies etc. So, the idea here is to take all the money you’d usually spend on these items and save it all. There are several other ways to save money which you have to find out for yourself. These days there are several apps which help you in saving. If you have some passive sources of income you can easily save some extra money.
Pay your credit card bills on time
In a crisis, a credit card can turn out to be one of your best allies. However, because the interest rates are so high, it is also your deadliest enemy. However, you can take advantage of the interest-free period offered on all credit cards by making full, on-time payments on your credit card bills.
Even if you require money right away, it is not wise to use the cash advance feature on your credit card. From the date of the advance to the date of repayment, the bank assesses interest on the amount of the cash advance. Additionally, each such usage carries a cash advance fee. In its place, you can use your debit card to take money out of your savings account.
Repay Your Loan Installments Properly
Your finances may be impacted in two ways if you miss a loan installment payment. One of them is that you wind up having to pay penalty interest on the past-due payments. Second, your CIBIL score is impacted by any late payments or defaults on installment repayment. You consequently forfeit a number of advantages that banks grant to those with high CIBIL scores like access to several loans, interest rate breaks, etc. Hence, try to maintain a sufficient balance in your savings account.
Having enough liquid assets on hand is one of the guiding principles of sound money management. We therefore suggest keeping enough money in your savings accounts at all times. In an emergency, you might require the money.
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Have Adequate Insurance
Peace of mind is the first thing in financial life and for that you must buy appropriate insurance. You must also make it a point to take health insurance coverage for each family member. It would save you and your near ones from the hospital blues and save your income-tax as well.
Pay Off Every Debt
Debt includes personal loans or credit card debt. The largest barrier to saving more money is EMIs. Make sure you pay off any debt on time, whether it is money you owe friends or credit card payments. The entire sum of money utilized to pay off debt could be used to increase your savings. As a result, even if you apply for a loan, be sure to pay all of the EMIs back on time. It’s also a better idea to use a money lending app than a credit card if you require emergency cash for a buy. Those tiny plastic cards consume a lot of your interest.
Paying taxes on time is another important point of managing personal finances. It can be essential to pay estimated taxes throughout the year if you are self-employed. By submitting a tax return by the due date, you can avoid paying severe penalties.
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Know The Difference Between Savings And Investment
Generally speaking, people equate savings and investment. However, this is not the case because if they were the same, there would be no need for two distinct terminologies. In order to properly manage your funds, let’s understand how the two differ from one another.
The idea of saving can make it easier for you to have money anytime you need it, even for a rainy day fund. Investment, on the other hand, is more focused on producing profits. For instance, having a savings or deposit account with a bank or the post office is considered saving, but investing would involve buying shares, insurance policies, gold, real estate, etc. Savings therefore have a focus on providing for future needs, whereas investing is more return-focused.
Related: 14 Places To Invest Better Than FD
Managing Personal Finance Better
Most individuals believe that bank deposits are the best means of saving money. Yes, they are correct, as bank deposits provide the security of money, are readily available, and are liquid. The returns on bank deposits, however, are quite low (3%-6%). The inflation rate is typically higher than the interest rate on deposits offered by banks. In other words, you ultimately lose money.
For instance, at 6% interest, a bank deposit of Rs. 1 lakh will be worth around Rs. 1.06 lakh at the end of the year. The Rs 1.06 lakhs, however, do not have the same purchase power as the Rs 1 lakh did a year ago if the inflation rate is 8%.
Therefore, we advise everyone to have a healthy balance of savings and investments. You can arrange your finances so that you have enough in your savings account to support your family and deal with emergencies. You can also invest any extra money in assets like equities, mutual funds, chit funds, etc. You can choose real estate, gold, or other long-term investing objectives. Each type of investment has a different level of risk and offers a different return on the investment.
If you need money right away, you can consider investing in a registered chit fund platform like The Money Club, that has a long standing reputation and you can expect to gain about 12%-15% p.a. return on your investment with absolutely no risk.
You can contribute a small amount each month to a chit plan for a predetermined period of two to three years. At the end of the period, you can withdraw your money and receive annual returns of 10% to 15%. Any unforeseen expenses can be paid off using a chit. It can also be used to pay for planned expenses. It is the only financial product that allows for both saving and borrowing. In comparison to what banks offer, the rate of return generated is substantially higher. In addition, a chit fund plan’s backup fund guarantees instant liquidity and permits withdrawals at any time in case of an emergency.
You can read: Traditional Chit fund Companies vs The Money Club
Best Alternative Investment Options in India
‘Save more, spend less’ is the need of the hour. The points illustrated above are good managing money tips. Also we have discussed various measures for managing personal finances. However, while savings is crucial, it is better to have adequate investments to take care of you in the long term. Therefore, we advise you to exercise care and choose the right investment options to safeguard your hard-earned money.