It’s month-end time, and what are the thoughts wandering in your mind?
OMG, I still need to pay few bills!!! I need some bucks for some personal purpose!!!
And last but not least, the entire salary/income has been spent, and I have not yet saved some of it.
All these thoughts seem to be familiar. Right???
Whatever be your earnings, the urge to save some of it for your future persists in each of us, but maybe we ignore it off when we spend the bucks for the entire month!!!
What if we get some guidance on utilizing your earnings efficiently and inculcating the habits of saving? The effective and efficient management of your personal finance is what is called personal finance management. Don’t you worry as you don’t have to go to anyone to do it? You yourself can do it on your own.
The most important term in the word personal finance management is “Personal.”
Each person has different sources of income, and thus the amount earned differs. Accordingly, are his lifestyle habits, his tastes, and preferences.
Many people believe that they don’t earn much, so what the hell savings will they do, or moreover they feel that they are not capable of doing the required savings.
Frank A Clark says, “Many folks think they aren’t good at earning money when what they don’t know is how to use it.”
Also, there is a saying that inculcating the habit of saving yourself is as good as earning money.
So, what are we waiting for? Let’s have a look at how we can inculcate the habit of savings in ourselves.
Tip # 1:
Save before saving:
Now, what does this mean? Let’s take an example. Suppose Rs.100/- is our income. So before spending money out of RS.100/- we need to keep aside some money, say Rs.20/-
This way, you won’t regret that you didn’t make any savings at the end of the month.
It’s a prevalent habit to spend before making savings. And this way, we fail to save at the end of the month, or even if we do, it’s negligible.
Do follow this tip and notice the changes in your savings, which will surely make you smile at the end of the month instead of frowning.
There are many options through which we can opt for this tip. We will go through it in detail in our next article.
Tip # 2:
50 – 30 – 20 Rule:
This is a prevalent rule followed worldwide in terms of saving. The rule says that whatever you earn, you must spend 50% of it on your necessities. The next 30% on completing your luxuries and the balance 20% should be your savings.
Considering the tip mentioned in Tip #1, first, keep aside 20% of your income and bifurcate the balance 80% in 50% and 30% for necessities and luxurious life, respectively.
Tip # 3:
Credit Card Use:
A credit card seems to be like a magic card available to most of us in times of financial crunch.
But hold on, excess use of credit cards surely can increase your debts and make you bankrupt.
Ensure that you use a credit card only to the extent of your ability to repay it at the due date.
Because the inability to pay it at the due date will charge you higher interest and burden you with more outflow of your money. Always remember that each time you borrow the money, you are robbing your future self.
It’s recommended to use a credit card to the extent of 30% of your overall credit card limit. This means if you have 2 credit cards each of Rs.50,000/- limit, then use credit cards to the extent of 30% of Rs.1,00,000/- i.e., Rs.30,000/-
One more tip to be followed for the usage of credit cards is that it to be used to fulfill your necessities and not your luxuries.
Also, if you fail to pay your credit card dues on time, you can always give standing instructions to your bank for payment of the dues on the fixed date. This way, you are free from the interest burden and late payment of the dues.
Insurance is a vital part of financial management. It plays a crucial role in emergency hospitalization and helps you face the situation strongly in both emotional and financial aspects. So, it’s vital to cover each family member with health and medical insurance. Let’s know the difference between these two insurances in our next article.
Tip # 5:
Now for what are these required?
Considering the fast-paced world, there are many incidents where one loses the job. There are business ups and downs, or one has to face some unfortunate incident or unforeseen medical expenses. Emergency funds are to be saved to survive these phases of life.
Now, how many emergency funds should you keep aside?
Usually, it should be 4 to 6 times the monthly expenditure that you incur.
So, if you earn Rs.50,000/- and your monthly expenditure is 50% of your income, i.e., Rs.25,000/- then your emergency fund to be accumulated must be in the range of Rs.100000 (Rs. 25,000* 4)- or Rs. 1,50,000/- (Rs.25,000*6). This way, you can survive 4 to 6 months and meanwhile search for other income sources.
It would help if you accumulated your emergency funds step by step, i.e., either through monthly savings or excess savings in some months transferred to your emergency fund account. Remember, little drops of water make a mighty ocean. Once you have reached your target, do not stop saving. Keep accumulating for the emergency funds in more or less amount. This way, you will be habituated to the discipline of saving, and also, there will always be some amount set aside if you happen to use the emergency fund partially.
Apart from the above habits, one habit that you can inculcate is maintaining an expense diary. By maintaining this expense diary, you can view your spending and learn whether you are spending it on the right things and in the right way.
Remember, it’s not the money that matters; it’s how you use it that determines its true value. Also, you must gain control over the money; otherwise, the lack of it will forever control you.
BY CA Deepali