Many people wonder what personal finance is all about and how it helps you with life? We need personal finance to help us, as many of the times we fail to secure ourselves financially is because we are unsure of the steps that should be taken. Hence, Personal finance can help you better approach your money by knowing the different parts of personal finance to help you organize your future more effectively.
In this blog, we will introduce the 5 different aspects of personal finance to guide you on how to manage your money efficiently.
A sudden financial need will arise at any moment. It might be anything minor such as a car breakdown or something as drastic as losing your career. On the other hand, these emergencies should be only dealt with sufficient savings to cover the costs. As a rule of thumb, the emergency fund can be three or six months worth of expenses.
Debt assets such as Liquid Funds are excellent options for storing capital to set aside money for emergency funds.
3 Reasons why Liquid Funds are excellent options:
- Liquid Funds give better returns compared to a savings account
- You can only withdraw the money after seven days as the funds are highly liquid
- They offer negligible credit and interest risk, ensuring that your money is safe.
People often confused between investing and savings. So, what is the difference between savings and investing? Savings refers to the amount left over after an individual’s consumer spending in a given period of time. Whereas investing is putting in money for assets with the expectation of generating an income or profit.
Let’s focus on talking about investment. Mutual funds are excellent investment options. However, while investing in mutual funds, it is important to select the right fund for your investment. Otherwise, your investment might backfire. Hence, it is important to plan your investment based on your goals and time period.
The main goal of investing is to turn your dreams into financial objectives and set a time period based on them. Thereafter, choose a mutual fund that matches your investment timeframe.
What funds should we pick as financial goals?
Short term goals: Goals that need to be achieved within three years are short term goals.
Mid-term goals: A goal that you need to meet between three to five years could be paying for a down payment for a house that can be referred to as midterm goals.
Long-term goals: Goals within a time span of a minimum of 5 years are referred to as long-term goals—for example, significant events such as retirement, children’s education, or marriage.
Most people miss this important part of personal finance. When you purchase insurance, you can safeguard your savings and reduce your risk of financial disaster. If you do not have healthcare, a single hospital visit will make you bankrupt. If you do not have benefits that encourage you to take a refund to buy a new vehicle, a car crash will leave you without a way to get to work.
When you pay attention to your policies, you will take note to protect your finances and your family, from home insurance to life insurance. Sit down to determine what you require, and purchase the appropriate insurance coverage.
Tax preparation is another part of personal finance to which you do not pay attention. You might be shocked by how much extra money you can keep if you have the right path to taxation.
You could be able to keep some of your money — and put it to use for yourself — based on how you invest, whether or not you have a job and other variables. You will enable your capital to grow more quickly by investing it in tax-advantaged savings accounts and finding out ways to get refunds and credits on any of your expenses.
Retirement is one of life’s most important periods, and financial preparation is no exception.
Financial preparation for retirement is a two-step procedure. The first is to save for retirement, and the second is to generate income from your assets when you are gone.
The two stages are as follows:
Step 1: Building a retirement fund:
Saving for retirement is essential for various purposes, the most important of which is the lack of income and the improved life expectancy.
Step 2: After retirement, generate income:
It’s just as important to make sure you’re investing enough for retirement when you’re working as it is to make sure you’re channelling your money properly after you retire. Making the right investments would guarantee a stable income for the rest of your life.
In conclusion, It is important to control your finance to have the freedom to make personal decisions. Following all these 5 personal finances will help you better manage your money and will help you save a lot of money in the long run.