30-Jun-2017 written by : FSI-Team
Money is not everything but you need money for almost everything. So, it's important to realize the significance of personal finance, preferably during your teenage itself. Different people live by different opinions and rules when it comes to finance management. However, there are few that are universal and highly emphasized by most finance experts. These are:
Price is what you pay and value is what you get. The idea here is that you must understand the difference between the both. For instance, you may invest in mutual funds today at a price, but what you will get in return is the value which should be high. Thus, you must not just seek investments that are priced less, but rather those that are likely to offer a higher value than their price.
You may have heard this one before but it's so important that it deserves a mention. The message here is that you must never put all your money in a single investment. The reason is simple- if the investment performs poorly over time you will lose all your money. On the other hand, by putting your money in different types of investments such as bonds, stocks, mutual funds, etc. you minimize the risk and thus increase the profits.
The way you spend your money can directly affect your credit score and thus decide the kind of home loan or personal loan interest rate you are likely to get. Do you often pay your credit card bills late? Have you missed a few loan EMIs recently? These kinds of things have a big impact on your credit report. However, you can't afford to take chances with your CIBIL score as it's often the most important factor when it comes to getting loans or mortgages, etc.
Saving money is one of the most rewarding habits that you can instill in yourself. In fact, the sooner you start, the better. You don't realize how much money you waste on frivolous and unnecessary things in your life until you start saving.
Saving money makes you more disciplined and provides you with a better judgment on how to spend your money. Since your children also look at you as their role-models, they will become more responsible by learning from you and get to enjoy excellent personal loan rates with a few score checks when reaching adulthood.
Banks and financial institutions make a fortune on consumer debt. Credit cards, loans, mortgage, overdraft- there are a variety of ways they get high returns from. However, in almost every such instance, the one that loses money is you.
For a comfortable and stress-free life, it's important that you do whatever you can to avoid unhealthy debt. For instance, availing a loan is not bad, but accumulating debt by making late payments, etc. can lead to bad credit score result.
It's good if you are saving money in your bank account. However, apart from that, you must also create an emergency fund. This is especially important if you are a business owner or frequently put money in high-risk investments.
Ideally, your emergency fund should be enough to cover your expenses for 4-6 months during tough times if it ever came to that. The best way to do this is to put the money in a fixed deposit account, or a tax-free bond, etc.
Did you know that as per Section 80C and Section 24 of the Income Tax Act you are allowed to claim a tax deduction of Rs. 1.5 lakhs on the principal amount and Rs. 2 lakh on the interest paid towards a home loan? There are many other such ways to save money on your taxes which you should learn about for better finance management.
Personal finance planning is the key to a happy and stress free life. So, make sure you use your credit cards responsibly and apply for a CIBIL score check every once in a while to ensure you are on the right track.