ELEMENTS OF PERSONAL FINANCE

Personal finance is the integral part of our lives and we should always make an effort to understand the nitty gritties and technicalities of the same. In this journey there are various elements or say components involved which should be catered to while doing personal finance so as to get a better plan with a better cushion. 

In this article, we are specifically going to discuss each element which should be present in your personal finance journey. So let’s get started. 

SUPER STRONG AND MEANINGFUL GOALS 

What is the point of even having a financial plan if you do not have any vision or goals? There is not one!!

If you aspire to make headway financially you need a proper vision and goals that are strong enough to inspire you to act upon. Goals are what allow you to practise delayed gratification. For example, if you have a goal of paying off Rs 3 Lacs worth of debt in 6 months, you know that if you Spend Rs 3000 on a new shirt that you don’t really require, you are robbing yourself of debt freedom. 

Strong goals are what keep us in check and limits. Once we are committed to a particular goal, short term sacrifices are pretty easy to make. Start with strong goals, It is near impossible to map out a personal financial plan without having a strong vision and goal. 

AN AWARENESS OF BUDGET I.E. INCOME AND EXPENSES

Next comes either the horrid or fun part, depending on your personality. We will go ahead and be the first one to admit that we do not like strict budgeting. Nevertheless, we are very aware of what to spend the money on. 

There is no right or wrong way of budgeting. You need to find what works the best. 

Few of the common ways to budget are:

1. Zero based budget:

This is where you map out where your money goes before you even receive it. You are essentially spending your money before it even hits you. With this model every rupee has a purpose. 

2. Saving from the top:

Another way to budget which works wonderfully for those of us who do not like the zero based model is to skim from the top. With this style, you meet all of your financial goals before you spend any more money on other expenses and bills. 

A LARGE EMERGENCY FUND 

You always need a decent emergency fund before starting on other goals like saving for a house, accelerating the debt repayments, saving for retirement etc. These funds come in handy and will prevent you from paycheck to paycheck living. Most financial experts recommend that you have at least 3 to 6 months worth of cash set aside for emergencies. We agree, but ultimately your emergency fund needs to be whatever makes you feel secure and comfortable at times of crisis.

When saving for an emergency fund you can also factor that if you did lose your income your expenses would probably be a lot low. 

SAVINGS, INVESTING, DEBT REPAYMENT!

After you have reached the desired amount of emergency funds, it is the time to accelerate for financial goals. This is the fun part of the process. 

If you have high interest debt like credit card or personal loan, paying that off should be your prime focus. Once that is done you can opt to pay off lower interest rate debt or move onto investing and saving. 

We all live different lives and have different mindsets. We can not tell you what you should be working upon. You need to figure out what means the most to you and then go all in on it. Nevertheless, one thing you should be aware of is retirement savings. You should have a retirement savings plan as one of the goals. 

Sectoral mutual funds are those funds that invest a majority of their assets in a single sector as per their objective. IT mutual funds invest a majority of their assets in IT sector stocks. IT sector is one the best performing sectors in the past years and is expected to be even better in the coming years.

You can take all that cash you have been saving towards the emergency fund and spread it between your financial goals.

THE RIGHT INSURANCE 

Insurance is often overlooked in a strong financial plan. The trust is without the right kind of insurance all of your hard work will go down in the drain with one accident. Don’t skip on insurance. Some insurance that you can look upon are:

1. Auto insurance:

Obviously, if you have a car you should not go without auto insurance. If you have a lot of assets make sure that you have high limits on your car and auto policy. 

2. Health insurance:

A major health problem could bankrupt you. This is one insurance that you do not want to be without. If you are without health insurance, I would recommend that you look into getting one which is a high deductible and inexpensive plan. You will pay a lot upfront with a high deductible health plan but in the event of a major medical issue your insurance will save you from financial catastrophe. 

3. Life insurance:

For a few reasons, it seems that life insurance is the most skipped part out there. If you have a family that you want to protect then you absolutely need life insurance to assist them when you are not around. 

INCREASE YOUR INCOME STRATEGY

Lastly, is a strategy for increasing your income. For a lot of individuals, expenses are not the problem. It is the income. If you are making Rs 2,00,000 per annum you are never going to get ahead. You need to get creative and look for active opportunities to increase your income. 

It takes hustle and hard work but anyone can do it. You just have to have the right approach and attitude.