10 must know Basics of Personal Finance for everyone
If you are living in this society you must be earning and spending money or atleast spending money for your living. For this you need Finance and when it is for personal usage it becomes Personal Finance. Though Personal Finance should be the most important area of our lives but unfortunately it is mostly neglected by most of the people. The basic actions of Personal Finance in today’s date are NOT optional but it is an important NEED. People take interest in other’s Finance management but when it comes to their own Finance they are happy to be in ignorance and it is keep going On Spec. Everyone, whether earning or not earning, should know the Personal Finance basics else its results become disaster not only for you but also for your family. Sometimes due to this ignorance the whole life earnings go in vain. There are 10 basics of Personal Finance that everyone must know, no matter whether you are from Finance background or not. Here are these 10 basics-
- Passwords Management: In today’s Digital World when everything is online especially financial transactions, the dependency has been increased on your accounts’ Login ID-Passwords. Though it is said that never share your passwords with anyone, but it is always wise that you should share details of all your bank accounts, insurance, cards, investments etc. with person/s whom you trust the most. It can be your spouse, parents, children, relative or friend but only to them whom you have complete trust. Because God-forbid any unfortunate event like death or critical illness happens atleast that money get into access to your family members. You can maintain passwords by maintaining an excel file and keep that excel password protected; you can keep it in your laptop (not in mobile as it can get stole) and keep this accessible to that person whom you trust the most.
- Account Nominations: Make sure you have added nomination in each of your bank accounts, Demat accounts, Trading accounts, Properties and all other Assets. If you have not done till now, don’t read rest of the article first go and add Nominee in all your accounts then come back to read the rest of the article. Nominee adding is must whenever you open any account and share this details to the person who is Nominee in your accounts as in case of any unfortunate event, your nominee don’t have to run pillar to post to get access of that accounts.
- Safety and Digitalisation of all accounts: Now banking in India is getting digitalised, get all your bank accounts digitalise and if you have other assets like Shares, FDs, Bonds etc. in physical form get them digitalised as soon as possible. You should keep highest level security in all your bank and investment accounts. For example- Get enable 2Factor Login in your Demat account, OTP enablement is you bank accounts etc. If you compromise with security, just one cyber attack and will take away all your earnings, so better to keep highest level security even if you find less ease in accessing your accounts. Compromise with ease of access not with security of your accounts.
- Operations of Account: This is for your accounts which have more than one account holders. The operation of accounts can be JOINT or EITHER OR SURVIVOR (EOS). Whenever you decided to keep any Joint account holding, instead of keeping it JOINT keep it in EOS. EITHER OR SURVIVOR operation of account is used when the account is in the name of two individuals and the signature of either of account holders is valid on date of maturity or to the survivor on death of any one of the account holders. But in JOINT account you need signatures of all valid account holders. If you don’t have EOS for your joint accounts your money will get stuck in case of any unfortunate event like death of one account holder. Make sure all your Joint FDs, bank accounts, investments should have EOS operation of account.
- Get Emergency funds handy: Today’s time is full of uncertainty; nobody knows what will happen in future. The latest and biggest uncertainty we have faced is the COVID Pandemic. Has anybody expected that our lives will get impacted from pandemic in such a drastic manner? No. Pandemic was at mass level; uncertainty can even come at individual level too. You should be prepared for your worst, it is rightly said- “Hope for the Best, Prepare for the worst”. Get your Emergency funds handy- you can put it in your saving account or keep it in liquid too. Emergency funds must be atleast the amount through which you can survive for atleast 6 months if all your income streams stopped. It is your financial backbone; Do not ignore it.
- Do the Retirement planning: It is said that the way of living life is – “Living in Present”. It is correct but remember when you live in present you must have plan for future. Future planning is done in present NOT in future. Do the retirement planning first before going for any investment. Once you done a good retirement planning you have secured your future and now you can invest as per your risk appetite.
- Term/Life Insurance and Health Insurance: The health issues are increasing, and rate of critical illness and sudden deaths is also unfortunately increasing. It has gone highest than ever. In such time, The Health Insurance is must and it should be for every member of your family no matter how young/old is he/she. After that Life/Term Insurance is also must for those who are bread earner of their family. You can choose cover as per your need; ideally it should be 20 times of your annual income. Sooner you take Life/Term insurance lesser the premium you have to pay.
- Avoid piling Debts: One of the happiest moments in our life is- When we get our First salary or get first earning. When you start earning it is natural tendency to live the life of your dreams. Surely you should live your dream life but only when you can afford it. If you take loans/EMIs for luxuries like Gadgets, Cars, Jewellery, Home etc. shows that you can’t afford it in that moment. Accept the situation that you can’t afford it and avoid taking any expense loan. Loan is only good for education and for expanding business, for rest of the things you should avoid it.
- Save before Expense: Whenever you earn, you use to spend it on your needs and wants and after that rest of the money you save. If you are doing this- it is not the right way, you should first take out a specific amount from your earning for savings after that spend the rest of the amount. Ideally you should take out atleast 20% for savings and investments, rest of the money you can spend. Follow 50-30-20 rule. 50% on needs, 30% on wants, 20% on savings. You can increase saving % but don’t make it below 20%.
- Do right Investments: Once you have started saving, invest that money in right place. If you keep it in saving account there will be 2 drawbacks- First, Interest from saving account will not be able to beat inflation; second- it is in liquid form you can spend it easily where you don’t have to. Invest your saving at right place as per your Risk profile. Invest in financial instruments that you understand and whose volatility matches your risk profile. Investment is the key of wealth creation, you must do it.
Always keep these 10 points compliance whenever you do Financial Planning, it will ensure your financial safety and security.
