Topic 4: Financial Planning Tips For Beginners
While there are tons of tips on financial planning out there, here are six tips for beginners that you can’t afford to miss. Youngsters who have just started a career may find a direction on how to make a beginning with their financial planning.
Planning is one of the significant characteristics of human beings. When it comes to money, planning needs to be done as there are enough variables that can affect your financial planning. There are a few milestones that are very important in your life. Be it your first car, your own house, your children’s education or their marriage. It is your responsibility to plan finances to fulfil these needs. Financial planning is a process of making a concrete plan to meet your financial goals in a specific period of time. It is crucial to invest your money from now to make it easier to achieve your short as well as long-term goals.
Here are some crucial financial tips for beginners which will help young investors to give their financial goals a kick start.
1. Manage your finances:
Managing your money need not be boring. It's not rocket science. Also, you need not be from a financial background. All you need to do is show a bit of commitment. Deciding to save money is the very first step towards money management. Saving money is a powerful tool towards greater financial independence.
2. Regulate your expenses:
If you are living on your paycheck and struggling for money even before the end of the month, then there is a chance you are living way beyond your means. This can happen if you have a lot of unplanned expenses! Unwanted expenses might leave you with no money for the necessities. However, there is a way out of this. Try making a budget. You may start by categorizing your monthly expenses into fixed and variable, necessities and luxury, urgent and non-urgent. This way, you can create a full inventory of expenditures in front of you. Make sure that you commit to your budget. Consider this as a commitment instead of a burden.
3. Create an emergency fund:
Out of 20% savings from your monthly income, the first thing you should do is to accumulate at least your three months income. Keep it in a liquidate form to manage emergencies such as health-related problems or job loss. Emergency funds will help you to avoid unnecessary debts. If you have to handle an emergency, you are likely to swipe a credit card or look for soft loans at a high-interest rate. Moreover, the emergency fund will also help in ensuring that your EMI payments do not get bounced.
4. Buy adequate insurance:
Just as investing is essential for wealth creation, insurance is vital for wealth preservation. But investment and insurance are two different things which many of us don't understand. You need to realize that your life and your property is vulnerable to risks. These risks can lead to a complete loss of income and put you and your dependents in a financial difficulty. Ideally, you need to buy a cover for at least ten times your annual income. Apart from life insurance, you may also need health insurance. It will help you to access high-quality healthcare at a reasonable cost. It is important to understand that you must not shell out more for less. Before buying an insurance policy, you can talk to your advisor and choose the one which satisfies your insurance requirements at affordable premiums.
5. Plan your taxes:
It is equally important to analyse your finances from a tax efficiency point of view. You can take advantage of the various tax deductions, exemptions and benefits so that you can lessen your tax liability at the end of the financial year. Even though tax planning is legitimate, you need to make sure that you don't indulge in tax avoidance or tax evasion. You can invest your money in several tax saving options. Section 80C of the Income Tax Act is the most efficient way to take advantage of tax deductions.
6. Manage your debt smartly:
Absence of debt management may eat up a significant portion of your monthly income. You may end up borrowing fresh to pay off older loans. Your crucial life goals may get sidelined, and even your retirement may get delayed because of excess debt. However, strategising your debt payment will keep you away from such troubles. Chalk out a schedule to pay off your debts and stay informed about how much you owe to whom.
In case you have more than one debt on your shoulder, start paying off the most expensive one. A credit card has been considered as the most expensive form of debt. As soon as your monthly income gets credited, pay off your credit card balance in full. Make sure to use the credit card only in case of financial emergencies. It is advisable to keep a loan as a last resort.
Managing finances should be backed by proper learning. It is crucial to learn that wealth can't be generated overnight. Planning your finances at an early stage is important, as it helps to develop a behaviour that will stay for long. Hence, you should try and impart financial aspects and should start working on it as soon as you get your first pay check. If you don't know where to start, never hesitate to take advice from your advisor.
Planning is one of the significant characteristics of human beings. When it comes to money, planning needs to be done as there are enough variables that can affect your financial planning. There are a few milestones that are very important in your life. Be it your first car, your own house, your children’s education or their marriage. It is your responsibility to plan finances to fulfil these needs. Financial planning is a process of making a concrete plan to meet your financial goals in a specific period of time. It is crucial to invest your money from now to make it easier to achieve your short as well as long-term goals.
Here are some crucial financial tips for beginners which will help young investors to give their financial goals a kick start.
1. Manage your finances:
Managing your money need not be boring. It's not rocket science. Also, you need not be from a financial background. All you need to do is show a bit of commitment. Deciding to save money is the very first step towards money management. Saving money is a powerful tool towards greater financial independence.
2. Regulate your expenses:
If you are living on your paycheck and struggling for money even before the end of the month, then there is a chance you are living way beyond your means. This can happen if you have a lot of unplanned expenses! Unwanted expenses might leave you with no money for the necessities. However, there is a way out of this. Try making a budget. You may start by categorizing your monthly expenses into fixed and variable, necessities and luxury, urgent and non-urgent. This way, you can create a full inventory of expenditures in front of you. Make sure that you commit to your budget. Consider this as a commitment instead of a burden.
3. Create an emergency fund:
Out of 20% savings from your monthly income, the first thing you should do is to accumulate at least your three months income. Keep it in a liquidate form to manage emergencies such as health-related problems or job loss. Emergency funds will help you to avoid unnecessary debts. If you have to handle an emergency, you are likely to swipe a credit card or look for soft loans at a high-interest rate. Moreover, the emergency fund will also help in ensuring that your EMI payments do not get bounced.
4. Buy adequate insurance:
Just as investing is essential for wealth creation, insurance is vital for wealth preservation. But investment and insurance are two different things which many of us don't understand. You need to realize that your life and your property is vulnerable to risks. These risks can lead to a complete loss of income and put you and your dependents in a financial difficulty. Ideally, you need to buy a cover for at least ten times your annual income. Apart from life insurance, you may also need health insurance. It will help you to access high-quality healthcare at a reasonable cost. It is important to understand that you must not shell out more for less. Before buying an insurance policy, you can talk to your advisor and choose the one which satisfies your insurance requirements at affordable premiums.
5. Plan your taxes:
It is equally important to analyse your finances from a tax efficiency point of view. You can take advantage of the various tax deductions, exemptions and benefits so that you can lessen your tax liability at the end of the financial year. Even though tax planning is legitimate, you need to make sure that you don't indulge in tax avoidance or tax evasion. You can invest your money in several tax saving options. Section 80C of the Income Tax Act is the most efficient way to take advantage of tax deductions.
6. Manage your debt smartly:
Absence of debt management may eat up a significant portion of your monthly income. You may end up borrowing fresh to pay off older loans. Your crucial life goals may get sidelined, and even your retirement may get delayed because of excess debt. However, strategising your debt payment will keep you away from such troubles. Chalk out a schedule to pay off your debts and stay informed about how much you owe to whom.
In case you have more than one debt on your shoulder, start paying off the most expensive one. A credit card has been considered as the most expensive form of debt. As soon as your monthly income gets credited, pay off your credit card balance in full. Make sure to use the credit card only in case of financial emergencies. It is advisable to keep a loan as a last resort.
Managing finances should be backed by proper learning. It is crucial to learn that wealth can't be generated overnight. Planning your finances at an early stage is important, as it helps to develop a behaviour that will stay for long. Hence, you should try and impart financial aspects and should start working on it as soon as you get your first pay check. If you don't know where to start, never hesitate to take advice from your advisor.