Understanding your Personal Finances

A lot of people think that personal finance is tough to learn and understand that that it is all about the numbers. However, we at mymoneykarma think that personal finance is just common sense! If you are stuck in a rut, remember that there are several tools online that can help you with number crunching. These help you with both simple and complex problems related to personal finance numbers.

If you really are stuck in a rut, or in confusion, remember that the goal of personal finances is to find out your financial goals, and where you want to go in the future. For instance, how much do you want to save? When you pen these thoughts down, you get a direction.

So, first of all, let us see how to get started.

How do you get started on your personal finance journey?

So how do you start on your personal finance journey? The very first thing to do is to learn about personal finance, of course! There’s a ton of resources available free on Google. However, you are likely to find information that is both confusing and contradicting. If that happens, reach out to professionals in this field.

One personal finance and financial planning mistake that people make is that they invest first, and learn by trial and error. It is all right getting the knowledge, but losing money in the process is not recommended. You can make mistakes that are irreversible and costly. Such mistakes such as delaying in good investment schemes can make you miss out on prime compound interest rates.

So here’s what you need to do: take out a pen and paper. Write down your assets on one side, and expenses and liabilities on the other. It’ll help you to plan ahead and budget.

Planning is almost all it takes

When you note down your assets, income, liabilities and expenses, you get a rough estimate on your money management and financial situation. Now, let’s say you want to buy something or invest in something, or even get a new loan. All of these depend on your unique circumstance. It depends on your state of finances, your life goals like marriage, aging parents, education of your kids, starting a business, and saving for your own retirement,

See the points above? Now, plot those according to the time and money needed. For instance, saving money for retirement is a long-term thing yet you do need to start saving money for that. So, how much are you saving for that? Also, remember that the more your income is, the more your lifestyle expenses tend to get.

Get realistic

So, how does all this information help you? It does, in many ways! 

First of all, it gives you a real idea  of what you need to do, and what to plan for. 

Secondly, it helps you to divide your life phases, and makes them more based on reality.

Think about inflation

Are you a homemaker, an employer, a company owner or an employee? When it comes to inflation, all that does not matter. Everyone gets affected. Taking care of inflation is one of the most important parts of anyone’s personal finance.

News media says that inflation is growing at 5% each year, but in reality it is much more than that. For instance, healthcare costs are growing by 15% to 20% each year while education costs are growing by 10% to 15% annually.

Plan forward with an emergency fund

Right now with the Covid-19 pandemic, a lot of financial experts are saying that it is so important to have an emergency fund. The problem is, it’s too late for that for many people. They did not keep an emergency fund and are now worried. Ideally, an emergency fund should be fed regularly. It can save you from a lot of things like a business loss, health problems, and even from problems related to your work. It’ll help you to sustain your family. Ideally, you should have a 6-month or 1-year’s worth of emergency fund. If you are an entrepreneur, this piggy bank needs to be larger.

Personal finance investing 

Investing is a big part of personal finance. Wondering where to invest? Well, there are several avenues, and each is different in terms of returns and purpose. These include:

1. Gold and gold loans

2. Fixed deposits

3. Real estate

4. Equity mutual funds

5. PPF

6. ELSS

Think about why you are investing, and for what. It’ll help you to pick an avenue. By the way, don’t put all your money in one category. Diversify your investments.

What about buying a dream home?

Everyone wants to buy a home. It’s on the back of everyone’s mind, thanks to the lovely ads that appeal to one’s need to get a home replete with a swimming pool, a gym, tons of greenery, and more. The problem is that if you invest in buying a home without much thinking, you can fall into a down-spiraling debt trap. This typically happens to youngsters in their 20s. They get a home loan or even a credit card loan.

It is far better to invest through an SIP. At least, it makes you save regularly and give better returns.

Start right now!

Planning your personal finance may seem like a huge task, but it is not. All it takes is a bit of planning, and a few hours of work at first. Once you understand how the system works and keep getting new information, we promise it gets easier from there.