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All You Need to Know About Personal Finance

Don’t you think it is important to understand the concept of Personal Finance? It is crucial to learn financial planning to avoid feeling lost in emergencies. Being able to manage your money will give you the freedom to live life as you want and meet financial urgencies with ease. But most people don’t know how to handle their finances and therefore, end up making wrong decisions and suffering from the consequences. This article will help you gain knowledge about effective financial management and obtain worry-free financial health. 

Personal Finance

It is a word that is used to describe the management of money by one person. If you are an individual who earns income from a job or a business or has inherited wealth, it is time to plan your finances. Financial management involves saving, spending, and investing money. Many people are ignorant of the same; they make decisions that are harmful to their financial position. It is an art to manage finance and if you are interested to grasp the same, let’s start learning it. 

Financial Planning Process

There are a series of steps involved in financial planning that helps to have a better lifestyle. Below is the common approach to planning finances on your own.

  • Evaluation of financial situation
  • Save money
  • Set financial goals
  • Determination of risk profile
  • Implementation of financial strategies
  • Review the performance

Evaluation of Financial Situation:

Identify and analyze your financial commitments. How much money are you making? What are your expenses? What is portion dedication for investments and savings? Answer all the questions to evaluate your financial health. The difference between the inflow and outflow of cash is your present financial position. If the difference is minimal, it is time to pay attention to your spending habits. Try to review all your commitments to make a list of changes for improving your situation. 

Save Money:

Another point to consider is the saving aspect. Always ensure to save some amount every month. Because without saving, you cannot survive in the long run. If your spending habits are unhealthy, fix them. Once you allocate money for savings, you will be able to handle emergencies with ease and enjoy life without boundaries.

Set Financial Goals:

This step might appear tough but it’s pretty easy. Find out the financial requirement to meet your expenses and debts. Analyze the amount of money you want to save for your future. There are three kinds of goals everyone should set in their lifetime. They are

  • Short-term goals: include clearing off your credit card, preparing a monthly budget, creating a reserve for emergencies, paying rent, etc., 
  • Medium-term goals: These include purchasing a new car, creating an investment portfolio, saving for a wedding, etc., 
  • Long-term goals: These are goals that focus on relieving you from financial dependence in the future decades like saving money for post-retirement activities and responsibilities, owning a house, etc.

Determination of Risk Profile:

Risk appetite is not the same for everyone. Do you love taking higher risks and have the financial strength to withstand a monetary loss? If yes, then be prepared to experience higher returns or losses. If your risk-taking capacity is low, try to choose investment plans that suit your needs. 

Make Investment Plans:

Investing is the best way to grow your wealth. You will also receive higher returns in the future. And for that, you need to start investing from your first salary. There are many wealth-creation plans in the current financial scenario. Pick the best one that meets your financial position and goals. Some choose to invest in stocks, CDs, mutual funds, options, futures, insurance, and a few real estate. Whichever choice you make, ensure to check if that can appreciate the value of your investment in the future. The rate of return depends on the risk carried by the option. 

CDs carry the lowest risk. You will be entitled to a guaranteed return in the future. Whereas trading is a complex process that can give you higher returns if you are aware of the market conditions and various related factors to manage your portfolio. Another option available at your reach is financial advisory services. You can hire a financial advisor to help you make the best financial decisions and generate wealth. 

Implementation of Financial Strategies:

Most people make plans but never execute them. Don’t be that kind of a person. Implement the plan to secure your future. Contact a professional to review your strategy. Or you can also reach out to a friend who is knowledgeable to guide you on your financial journey. 

Review the Performance:

Review the outcomes of the financial plan. Has the plan benefited in any way? Or does it need some amendments to produce the desired results? If the plan worked for you, good for you. Else, make necessary changes in the strategy. The periodical review gives a glimpse of the effectiveness of the plan. So always ensure to compare the results of two periods. Yearly financial analysis is the best if you are focused on improving your financial health at a reasonable rate. 

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Reasons to Plan Your Finances

The ability to create and implement financial plans allows you to experience the below range of advantages. 

  • Meet changing needs
  • Prepare for emergencies
  • Calculate right insurance cover
  • Tax planning
  • Peace of mind

Meet Changing Needs:

We are human and we go through a range of phases. Each phase has different requirements. For Example, a bachelor may require money to meet their career, self-care, and family responsibilities. But a married man may have to earn enough to support the education and health of his children and wife along with his personal needs. When you save and invest enough, you will be able to meet the financial requirements of every phase

Prepare for Emergencies:

Having an emergency fund can promote meeting unexpected crises. The emergency fund must be useful to survive at least 11 months when in trouble or recession. It eliminates the scope for worry when you come across pay cuts, family emergencies, or job loss. 

Calculate Right Insurance Cover:

Health insurance or term insurance will be of help if there is an unfortunate loss of life or a critical health situation. That being said, it can only be beneficial if you choose the right insurance cover. The creation of a financial plan will facilitate considering factors like expenses, loans, income, and responsibilities to pick suitable insurance cover. 

Tax Planning:

A salaried person knows that a major portion of his income goes to the government. There are many legal ways to minimize the tax burden. However, many people don’t know about it. Financial planning acquires knowledge about the same. Some investments have tax benefits. You will have the opportunity to avail yourself of tax exemptions if you choose the right investment plans. So when you have planned and executed them in the correct way, they will reduce your taxable income. 

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Peace of Mind:

This is no brainer; Financial planning allows you to peacefully carry out your daily activities. When you are confident about managing your financial situation, your main focus will be on the efficient completion of your responsibilities and following passions. There won’t be a need to worry about funds as you have an emergency reserve for urgencies and some amount for pursuing your passions. It is easier to meet all the requirements and relax while your money works for you via investments. 

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Seek Help From Financial Advisors

It is silly to expect everyone to handle personal finance on their own. Some people have the capacity to manage their money by themselves whereas some lack it. One best way to have a healthy financial position is by hiring a financial advisor. If you don’t agree with the statement, read the below content.

  • Undeniable expertise
  • Reduced stress
  • Learning experience
  • Elimination of emotions from investments
  • Promotes coordination
  • Debt control
  • Customized financial strategy
  • Best investment choice
  • Preparation for life transitions

Undeniable Expertise:

When we don’t have the expertise to handle a function, it is best to reach out to someone with expertise. Financial advisors are professionals with in-depth knowledge of financial services. They can utilize their expertise and guide you toward the right path. Though the presence of online resources can make you feel that you can handle everything by yourself, you need a subject matter expert’s suggestion to achieve the desired financial outcome. Certified financial planners are the best choice for any income earner as they have a better understanding of the market conditions and ways to safeguard your financial health and increase your wealth. They can help you make any kind of financial decision; big or small. 

Reduced Stress:

Financial planning can be stressful as it requires you to consider various factors and goals. Analyzing everything and creating a budget is not an easy task. Saving money is not the only activity involved in managing your money. You have to find out your requirements and needs to survive in the long run. And most importantly, dealing with taxes is a time-consuming process and needs expertise. It is better to approach a financial advisor with high experience and knowledge to do the honors for your Personal Finance. They will take care of every aspect of financial planning and let you relax and focus on other crucial tasks

Learning Experience:

A financial planner will arrange a meeting with you to discuss your goals before preparing the budgets. It means they will analyze the investment opportunities in front of you and share a list of available options like insurance, estate planning, social security, etc

They will request your opinions and explain why a certain choice is best. Those meetings are a learning experience as you get exposed to important financial concepts and terms. In simple words, you will learn the management of personal finance along the journey.

Elimination of Emotions From Investments:

Investing can be a difficult job, especially if you are an inexperienced investor. Most budding investors pick financial instruments for long-term gains but drop off their plans in between. The main reason for the same is fear of uncertainty and a lack of knowledge. No one is to blame for the same; it is common to get overwhelmed and withdraw investments after observing the changes in market conditions. Only a professional can keep his cool and guide you on selling and buying stock or other investment-related products without getting emotional. That’s because a certified advisor understands the market moments and draws conclusions based on his knowledge and expertise. 

Promotes Coordination:

Financial advisors are great at coordinating with different aspects of financial management and teams. They can obtain coordination between different parts of your life. Their main aim is to provide financial freedom to the customers. So they ensure to coordinate with required professionals like lawyers, business managers, and estate planners to create the best financial plan for you

Debt Control:

Believe it or not, the majority of the population takes loans from financial institutions for various purposes. Availing of loans is very easy but paying them off is the hardest part for many people. 

A financial advisor will take up the responsibility to minimize your costs and facilitate the maximization of benefits by creating and implementing a suitable strategy. They will also help you make repayments on time to prevent unnecessary late fees and charges

In a way, they help you improve your credit score to receive loan approvals in the future. Doesn’t it become easy to obtain a loan approval when we have a good credit score?

Customized Financial Strategy:

The Internet has a lot of gyan on financial planning. But do you think that will help everyone make the best financial decisions? If yes, you might have to understand the fact that everyone has different financial strengths and weaknesses, only a personalized plan can help individuals effectively manage their finances. 

A range of factors will be considered to set financial goals and strategies to achieve financial independence. It is cute to think that savings will save you. But the fact is that sometimes investing has to be brought into the picture to appreciate the value of your money over time and meet your long-term goals. A certified professional knows how and what to choose to help you meet all your goals; short-term, medium-term, and long-term. 

Best Investment Choice:

There are a variety of investment options in the financial sector. However, not all are right for you. Identification of the opportunities that are appropriate for you is a skillful job. Only a financial advisor has the required skills to analyze and pick the right investment plan for you. They use their research and knowledge to find out the most fruitful and latest financial vehicles to boost your financial strength. 

They consider your risk appetite and financial goals to make an investment recommendation. They make sure to choose the option that can balance risk and return for you. Not just that, they will be available to educate you on opportunities you are interested in. 

Diversification of a portfolio is an important task and that requires a lot of effort and time. Only a professional can dedicate time and energy to creating a diverse portfolio for the minimization of risk and maximization of return. 

Preparation for Life Transitions:

No one’s life has ever been simple. And for the same reasons, contacting a financial advisor to prepare for future uncertainties is crucial. Situations like divorce and accidents are unpredictable. A financial advisor ensures to create a plan that can facilitate a smooth transition from one phase to another. Not just about the negative circumstances, even positive stages like retirement can be crossed with minimal or no financial challenges with a financial advisor by your side. 

Tips to Find a Reliable Financial Advisor

We have discussed the advantages of availing services of a financial advisor. Now is the time to learn about finding a trustworthy professional. Below are a few tips to identify a financial advisor

  • A financial advisor can offer a range of services like investment planning, retirement planning, insurance schemes, money-saving schemes, etc., So the determination of your requirements is necessary. Decide on the type of guidance you need. 
  • How flexible is your budget to hire a professional? Review your financial limit to pay the professional. Gather every piece of information regarding the fees and extra charges before signing the contract. Pick an entity that is affordable as per your financial limit. 
  • Do your research and make a list of reputed and established financial advisors within your city limit. It is best to hire a professional who lives in the same city as it promotes face-to-face communication. You may also reach out to your friends and families for references so that you can save some time, energy, and money. Don’t forget to check customer testimonials for a better understanding of the advisor’s services and their relationships with their clients. 

Conclusion:

It is funny how so many people aren’t aware of the personal finance concept. They make ignorant financial decisions and suffer in the future. This is why financial planning is necessary to manage your finances. Though the word ‘financial planning’ sounds complex and intimidating, it is a simple process. All you have to do is evaluate your financial situation, save money, set financial goals, determine your risk appetite, create and implement strategies, followed by reviewing their performance to check their effect on your financial position. You can seek the help of a friend or a family member for the same if you feel overwhelmed with the steps involved

The main reasons for financial planning are meeting changing needs, preparing for emergencies, calculating insurance cover, and obtaining peace of mind. Some individuals reach out for professional help as they get to access undeniable expertise alongside other benefits like reduced stress, learning financial concepts, eliminating emotions from the financial decision-making process, coordinating between different teams, controlling debt, availing customized financial strategies, picking the best investment choice, and preparing for different phases in life

Finding a random financial advisor to manage your personal finance is a bad choice because they may lack expertise, knowledge, and loot money from you. This is why determine your goals, identify the kind of services you want from a professional, research reliable financial advisors, and then hire one for availing of financial planning services. 

FAQs on Personal Finance

Q. What happens if I don’t have a financial plan?

When you don’t have a financial plan to lead a life, you are susceptible to struggling when you come across unforeseen situations and events. You may need to borrow money from friends, family, and financial institutions to meet your financial requirements. You may lose peace of mind due to constant stress about repaying them and finding ways to improve your credit score.

Q. Is personal finance an important concept?

Yes, personal finance is a critical subject and it needs attention from everyone. When you plan your finances in advance and have a cash reserve to meet urgencies, you will not experience financial stress. Also, there won’t be a need to borrow assistance from financial entities that charge high-interest rates. You can clear off debt and achieve a good credit score for future loan approvals alongside investing in financial instruments to enjoy financial independence in the long term.

Q. Why should I hire a financial advisor to handle my Personal Finance?

A certified financial advisor will have the right skills, knowledge, and expertise to analyze your financial situation and deal with Personal Finance accordingly. They will use their mental faculties in helping you make the best financial decisions for your welfare. That being said, you must be clear on the type of services, fee limit, and quality of assistance you need. Researching is the most feasible option to find a reliable professional who can give valuable suggestions and genuinely care for your needs. Read the customer testimonials, and gather references from friends and family to narrow down the list. They will assist in the smooth transition from one phase to the other. They create a personalized plan based on your requirements and situations so that you can enjoy financial freedom. 

Anuja Maniyala is a intern at IIM SKILLS. She worked as a creative content writer for AADOX and Quoteslyfe in the past. She has identified her passion for writing after working as a banker in some well-known companies like Wipro and HSBC. Her current target is to become an author of a unique and creative self-help book. Her enthusiasm and curiosity to learn about the human mind and behavior makes her different from the rest of the world.

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