In this article, we are going to share some “Practical personal finance tips in India for beginners”. You need to know all these financial tips to become financially successful.
We all are earning money to become financially free but most of us failed to achieve that stage. These things happen just because of some lack of knowledge.
It does not mean that you don’t have any educational knowledge or you don’t have any degree.
Here knowledge means financial knowledge.
If you notice that many people earned just 15 to 20 thousand rupees in a month for their entire life but when they retire they have a big amount of money for the rest of their life.
So don’t think that your earning is not good enough.
Many people do not follow any personal finance rule because they think that it may be a very complicated thing and they need to follow some strict rules or they need to do calculations all the time.
But it is not the fact.
Here we will simply present this. You just need to give some minutes in a month to plan this. You can create good wealth if you follow these steps.
What is personal finance–
We all know that everything is based on finance today. Like- In a company, there is a person or a team available to manage the finance of that company.
Like that you need to do the same. This is a skill.
You can never learn this in school or college but this is the most important thing in one’s life. So basically you need to manage your own money and can help it to grow.
This you can call personal finance. So here are some rules–
|5.Tax plan||6.Retirement plan|
First, you need to save money. This savings amount is going to be an emergency fund so you can put it in your savings account as a fixed deposit.
But you need to remember that invest in a savings account may not be good enough for your financial goal.
So the other funds (except the emergency fund) you can invest in some other places. But before investing any single penny research well and take advice.
For example- if your monthly expense is rupees 20,000 (including your loan) then you need to keep at least 1,00000-1,50000 rupees in your saving account for the emergency fund.
If any kind of pandemic came in the future or somehow you lose your job then this 4 to 6 month’s saved amount will help you to service.
Otherwise, you will be in big trouble.
Now you need to find out the loans where you pay a huge percentage of interest. Like there are two types of loans either it is a good loan or it is a bad loan.
You can call a home loan a good loan because here the interest percent is like 7 percent or 8 percent. Here you can also get the facility of tax benefit.
So don’t hurry to prepay it.
But if you have a bad loan like a personal loan where you are paying 12-15 percent of interest and you are also investing in a mutual fund that is giving a return percentage of 12-15 percent (approximately) then you are gaining nothing.
So in this case it is better to prepay that bad loan first and then you can start investing in a mutual fund.
This is a stage before starting investment otherwise you may be at a loss.
This is maybe the most complicated step among all these to everybody. Many people have more than 10 insurance policies in their portfolio.
But it is the worst thing.
Many people have 10 insurance, 25-30 mutual funds, 100 stocks in just one portfolio. That is why this may be the most complicated thing.
You don’t need 10-12 insurance policies. You need to keep it very simple and clear. You should have 2 types of insurance–
This insurance is them who are the earning member in the house. Suppose you are the earning member in your house. Then this is for you.
That does not mean that the other member has no value.
You need to understand that if anything bad happens with the main earning member then it becomes very tough to survive for all the rest members.
So if your earning is 4 lac rupees per year then you should take life insurance of rupees 80 lacs. It should be 20 times your yearly income.
You can take a critical illness cover also if you want. Nothing else is required in this sector for you.
It is not costly. Roughly if your age is in between 30-35 years then it should be within 12-15 thousand rupees per year.
Health insurance(personal finance)–
This is very much needed for all the members in the house. It should be for you, your spouse, your father, mother, children everybody.
A medical emergency can happen anytime to anyone.
So you need to take health insurance of at least 1-1.5 lacs per person in your house.
Because you can understand that if any kind of medical emergency happens then the bill will be above 2-3 lacs.
Then it is obvious to take health insurance for everybody.
It is better to take at least 1 lac rupees insurance per member rather than not taking any insurance.
Now you have life insurance, health insurance. So you don’t need any other insurance now.
Remember you should not mix up insurance and investment.
Now you can understand that it is not that much complicated. It is easy.
It is one of the or the most important steps. There are many options where you can invest your money.
Like -equity. Here, two options are available. One is a mutual fund and the other one in stock.
You can also invest in gold which is also a very good investment. You can also invest in real estate.
If your retirement is far away, mean to say that you don’t need any big amount right now for your children’s education, marriage e.t.c then you should have a little bit of exposure in the stock.
Now, where should you invest, in which stock for this you can take advice from a financial planner.
This is not a mandatory thing that you should take advice. If you are confident enough that you can pick good stocks then you can invest on your own.
Many people don’t even want to take any financial planner’s advice or they don’t want to invest on their own in stocks.
Because they are not confident enough in stocks. In that case, you should invest in a mutual fund.
Here is a most important rule. At least 20 percent of your income should be invested in any kind of investment instrument. This can be in gold, stocks, mutual funds e.t.c.
Like if your earning is 30 thousand rupees per month then at least 6 thousand rupees of that should be invested. If you can then you can invest more.
A mutual fund can be most profitable for you if you invest here for a long time.
Gold investment(Personal finance)–
The second thing is gold investment. It does not mean that you need to buy physical gold. Because it is not the right thing.
Here you need to give making charges as well as when you are melting that then also deduction happens.
So if you want to invest in gold then the best way is to buy a sovereign gold bond. Here your investment will increase as per the gold rate.
And you will also get 2.5 percent of interest every year. This is also one of the best investments.
If you want to stay or you want to make an office then you can buy a plot of flat. You can take a home loan also for that.
Because it is too cheap. But if you want to invest in it then we think there are many better options (as per our opinion).
Here you need a huge amount of money to start. And this is the most negative thing according to us.
As well as there are many more things like maintenance, paperwork e.t.c. If you are doing a full-time business then that is different.
You can earn good money from here.
How much you need to invest in gold, stock, mutual fund, depends on your goal, need, and aim.
This should be set by you. But you should invest in these three. There should be at least 3 good mutual funds in your portfolio.
The investment amount is up to you.
This is very much needed for those whose earning is more than 6 lacs in a year.
If your earning is less than that then it is not that much important.
You can get a deduction on LIC policy, Education and you can also invest some amount in a tax-saving fund.
Now if your earning is more than 6 lacs then you should 80C fully.
Here you can invest up to 1.5 lacs in tax-saving mutual fund and life insurance to show less income.
Like if you are earning 7.5 lacs in a year then after investing that 1.5 lacs your income will be 6 lacs.
Because that 1.5 lacs will not be calculated in your income.
You can take NPS of 50 thousand rupees and can get a deduction on that and same as on home loan, health insurance.
You just need to plan on this. This is not that much difficult.
Retirement plan(Personal finance)–
You just need to check what is your monthly expenses now. As well as you need to remember the remaining time for your retirement.
Like if your today’s expenses are rupees 30 thousand rupees then you need to calculate that how much amount you need monthly after your retirement.
You need to add the inflation rate with it. For this, you can take the help of any SIP calculator available in the google play store.
You can check that how much amount you need to invest from today with an average return of 10-12 percent to fulfill your retirement goal.
These are the most important 6 steps for your personal finance planning. Just remember one thing that you need to keep this simple.
But you need to follow all the steps to complete it.
What do you mean by personal finance?
It is aterm that covers managing your money as well as investing and saving.
Why is personal finance important?
It is very important. If you can’t manage it then you surely can’t be rich.
What are benefits in personal finance?
It will help to fulfill your fimancial goal. It will increase your saving that will be needed for emergency or retirement plan.
What is the best way to manage your money?
First understand your current financial condition, then set your goal, focus on saving and invest your saved money.
If you have any other questions on this topic please comment below.