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Having a CA doesn’t make you financially sorted. Unless you’re a monk, learning the bare minimum of personal finance is a non-negotiable life skill in today’s India. Once a wise person said, the best way to waste your money is to show off your money.

I still think and regret why I did not understand the importance of savings, investing, and personal finance management and start doing the same in my early 20s, if I start the same in my early 20s, I might possess better knowledge and have more experience than I have right now, nevertheless better to start late than never to start.  If someone asks me what is your financial goals? I would not say to buy an iPhone or to buy a car or to buy any other thing, I would rather answer this as to get retire between the age of 35-40 and let allow my money to make money for myself. Further, for me, financial freedom means living my life on my own terms and not worrying about being dependent on anybody else. For me, it’s the freedom to build a life that I am proud of.

To define personal financial planning in very easy terms, we need to understand that what we mean by the term Personal Finance. In very basic terms, Personal Finance means a decision that covers the management of your own money which includes earning your money, Savings done from your earnings, and investing the same savings to get a good return for a lifetime. It encompasses budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and estate planning.  So, to achieve our own financial goals, one must need to plan their finances in such a way that we can able to achieve them by that age. Financial planning is important even if you have good wealth.

Personal Finance planning is not about living in penury to save and invest for an uncertain future. You can and you must live a good life now that will not cost you the good life later. For any purchase that you cannot pay out of your monthly income, do not borrow, save for it. Don’t buy depreciating assets by getting compounding liabilities against them.

“It is not your salary that makes you rich, it is your spending habits”- By Charles A. Jaffe

Now the question is why personal finance planning is important. Following are some of the reasons which make personal finance planning extremely important, Walk with me through this simple and interesting journey of understanding why personal financial planning is an important skill that a person should adopt in his life:

  • Provides direction to Goals or dreams to identify them easily.
  • Makes you more disciplined towards hard-earned money.
  • Enjoy a Better standard of living.
  • By planning finances, you can plan your future in a better way.
  • You can easily deal with emergencies.
  • Helps in making better life
  • Attain peace of mind and self-satisfaction.
  • Financially secured retirement life.

Here are the things to know about personal finance:

  • No direct Correlation between expenses and income: It’s human nature to increase our expenses with an increase in income. The rule to follow is-increase in income should not result in a proportional increase in expenses.
  • Make Savings your best friend: A common rule for savings and spending is the 50/20/30 rule. It states that 50% of the income should be spent on necessities, 20% should be saved and the rest 30% should be used for personal expenditure.
  • Magic of Compounding: Investment Strategy should be charted for the long term and the key is to diversify your investments. In the short term, even if you make losses, don’t change your strategy because patience is the key to investment that give results in the form of compounding.

Personal Finance Planning

  • Guiding Light of Reading: Read as many blogs and books about finance and successful investments as you can find. Before entering the financial world, you should know why you are entering and what it will mean to you.
  • Financial Calendar: The final step is to plan your financial life ahead. At what age you need funds for a house, car, education, wedding, or vacations should be roughly outlined so that you have an investment strategy for the major events in your life.
  • Financial Planning recommendations are given after considering the financial objectives and the time horizon preferred by the investors.

5 must-read personal finance books for those interested in understanding their finances:

Inside the Investor’s Brain: The Power of Mind Over Money

By Richard L. Peterson, M.D.

It connects the dots between psychology and investment mistakes that we’ve all made.

Investor Behaviour: The Psychology of Financial Planning and Investing

By H. Kent Baker and Victor R.

This book is a compilation of various studies and models on investor behaviour. It is a great read for aspiring fund managers and financial planners.

The One-Page Financial Plan: A Simple Way to Be Smart About Your Money

By Carl Richards

This is one of the most relevant and my personal favourite when it comes to uncomplicating the financial jargon and understanding its practical use in the real world.

The Richest Man in Babylon

By George S. Clason

The oldest rule book for wealth creation that I know of, in which everything we know today about wealth creation is somewhere a derivative or refined version of this 140-year-old classic, which discusses the 5,000-year-old financial wisdom of one man.

Why Didn’t They Teach Me This in School?

By Cary Siegel

This is a book with clear and specific financial habits that one can follow to achieve financial freedom. An ideal read for young people who want to avoid making obvious mistakes early in life.

On the end note- “People who live below their means enjoy the freedom, which people busy upgrading their lifestyle can’t even fathom!” – Naval Ravikant

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April 2024