Personal Financing: What separates the 1%?

When is the last time you analysed your finances and calculated a budget? For most people the answer to this question is never. The average man either lacks action towards personal finance or lacks the knowledge to build a splendid portfolio. And the worst case is for the person who acts as a financial manager with incomplete knowledge. These people often end up losing their money to the stock market, options or even debt. Personal financing is very crucial to lead a healthy and happy lifestyle. Let’s look at the basics of Personal Financing

Budgeting

The very first and most important aspect of personal finance is the budget. A budget allows you to plan your expenditure as per your income. Once you are through with the money flow you can optimise it cut lavish expenses and make better investment decisions. Preparing a budget also gives you peace of mind and saves you from credit card interests. If you prepare a budget with dedicated debt allocation you will never miss your credit card bill or emis.

Investments

Some people use this word interchangeable with savings. But unfortunately savings and investments are two very different things. Savings is simply the money that you stop yourself from spending. But, Investment is the ability to make money by using money. Investment includes a variety of disciplines stocks, futures, options, commodity, mutual funds, banks, venture capitalist, etc. For most people i.e. the common man mutual funds should be the go to option. They can give good returns at lowest risk possible.

But most people choose to invest in savings bank accounts, F.D, R.D which they consider to be 100% safe. There are far better options than banks for investment. You should start reading some investment books the best one that you can start with is The Intelligent Investor.

Protection

Protection refers to the amount of money that you spend to safeguard your family and loved once from emergency. It can include your insurances life, health, car, etc. And of course ample amount of liquid cash that can be used in an unfortunate incident. At a minimum 1lac INR is recommended depending on your current location the amount may differ. But you should always have this amount in the most liquid position possible. Your savings bank account is the best option you can also keep it in a RD as most RDs are dynamic these days.

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