Managing Personal Finance in India

Personal Finance is the management of money by taking into consideration all the financial decisions of an individual. Personal finance is helpful in making decisions like creation of budget of family, purchase of financial products (like home loan, insurance, credit cards etc.) and choosing investment schemes that provide optimum return.

Components of Personal Finance:

• Net worth and Cash flow of individual’s household
• Protection of Life and Health
• Tax Planning
• Investment for individual’s goal
• Retirement planning of individuals
• Estate Planning

Benefits of Personal finance:

1. Building Wealth for yourself and your family: Personal Finance helps you keep a track of your income and expenses. Good personal finance ensures that you are managing your money responsibly.
2. Improves Living Standards: Managing of personal finance in an intelligent manner makes you confident about your future. When you are aware of your need regarding your goals, it makes you worry less about your future.
3. Debt management: Higher debt amount can eat up major part of your income and prevent you from reaching your goals. Personal Finance lets you create a personal pay off plan to help you get rid of debts in reasonable amount of time.
4. Helps you to save for unexpected/expected costs: Personal finance ensures that you are saving well enough for your expected and unexpected needs of the future.
5. Gives you peace of mind: Personal finance if not managed properly can give you enormous amount of strain and can negatively impact every financial decision you take in life. To help you get rid of this stress one must manage personal finance intelligently.

Mistakes in Personal Finance and how it should be managed:

• Dissolving all your savings in debts: The best approach that one can adopt in such a situation is to automate your payments, such an approach will ensure that you save more and live less on money.
• Emergency Funds are ignored: Ignorance of emergency fund results in liquidating your savings which can hamper the goal achievement of an individual.
• Spending without making a budget: Making of budget is time consuming but it is a healthy approach towards your future. Ignoring budget can sometimes result in over spending.
• Lending high amounts to family/friends: Planning your finances is important for a happy life. Always give priority to your budget and savings and then makes a decision of lending.
• Refusing to diversify: Investing in individual investments can end up increasing your cost and your risk diversification is also hampered. Te idea of diversification should be clear in the minds of the investors, investing in same type of schemes with different banks is not considered diversification.Diversification into various asset classesis important for achievement of goals.
• Taking advice from people who are low on knowledge: Do not follow the instructions of the people blindly, be it your bank, neighbour or friend. When someone is advising you, always analyse the pros and cons of that investment and whether that investment is helping you achieve what you are aiming for.

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