Personal Financial Management

Personal financial management is a daunting and continuous task that can even make the most economically savvy individual confused. In a world where assets and investments change value quickly and we link our bank accounts to innumerable services, financial management is a trickier concept than ever before.

At a very basic level, personal financial management means gaining an understanding of your financial situation in order to make the most of your assets in day-to-day life and in planning for your future. To make the most of the money at your disposal requires constant awareness and strategic thinking.

Personal financial management is the process that covers and manages all the financial services that affect an individual or a family. It hugely depends on a person's earnings, savings, debt for college, living requirements, retirement etc. But first, you'd need to figure out where you are today and where you want to get to. There are some simple things that one can do to improve one's financial situation:

1.0 List your financial goals: Creating a master list of all your goals is a smart first step. Short-term goals to reach in the next year or so and longer-term goals like retirement. Once you have written down your financial goals, prioritize them. This organizational process ensures that you are paying the most attention to the ones that are of the highest importance to you but a long-term goal like saving for retirement requires you to work towards it while also working on your other goals.

2.0 Create a budget: Creating a budget happens to be the one step that makes almost every financial goal reachable. A budget is a line-item accounting of all your income and all your expenses. The whole purpose of a budget is to help you decide how to spend your money over the coming months and years; and lay everything out in front of you so you can make some tweaks if you're not currently on course to meet your goals. There are also budgeting apps you can sync with bank accounts that can make it easier to track spending in real time.

3.0 Build an emergency fund: One likely need not be convinced that having some money tucked away for life's endless stream of financial curveballs — pandemic layoff, medical emergency — is perhaps the ultimate money stress reducer. At a minimum, it's smart to have at least three months' worth of living expenses saved in an emergency account; six is even better. The best way to achieve this is to open a separate bank or credit union savings account that you designate as your emergency fund.

4.0 Pay off debt: Debt is a huge obstacle for many when it comes to reaching financial goals. That's why you should make eliminating it a priority. Set up a debt elimination plan to help you pay it off more quickly. While making minimum payments on all of your debt accounts, pay extra money towards one debt at a time. After paying off one debt account, move all the money you were paying on the first debt to the next debt and continue from there, creating a debt-payoff “snowball effect.” Once you are totally out of debt, commit to staying out of debt. The key to building financial security is to only borrow what you truly need.

5.0 Invest: Investing is putting money/purchasing assets like – stock, bond, mutual funds etc. – in order to make your money grow. While selecting an investment avenue, you have to match your own risk profile with the associated risks of the product before investing. It’s best to start out investing in mutual funds or exchange-traded funds rather than individual stocks and bonds until you get your feet wet.

6.0 Financial protection: We might weave several dreams in life and create investment plans to turn those dreams into reality. But unless we protect them with a safety net, the same can turn into a liability. That safety net is insurance.
The 4 kinds of insurance that we all need are term insurance, health insurance, mortgage protection insurance, personal accidental insurance

7.0 Retirement planning: Retirement is one of the most crucial life stages, and it can be as blissful or as miserable depending upon how you have planned for it. Planning finances for retirement is a two step process.

7.1 Building a retirement corpus: Saving for retirement is crucial for two reasons majorly – loss of income and increased life expectancy. Plus, considering inflation, your expenses will be much higher after retirement than it is today. Now, building a fund as large as a retirement corpus is a lifelong process. So, the earlier you start saving towards, the better it is. Investment option to build retirement corpus: EPF, NPS, and Mutual Funds.

7.2 Generating income during retirement: Channelizing that corpus correctly after retirement is equally important as saving it. Making the right investments will ensure that you have a steady income as long as you live. Investment option for generating income during retirement: STP withdrawal/transfer from Mutual Funds, life insurance annuity and rental income.

Being in control of your finances and having the power of making a life choice without worrying about money are two things that we aspire to have. Having all the aspects of a complete financial picture in one frame ensures that your financial future is just picture perfect!