What Are The 6 Most Important Aspects Of Personal Finance? One of the main reasons we can’t get ourselves financially secured is because we don’t know what to do for it. We’re doing what we think is right, but that might not be enough. So it’s essential to know the key components you need to focus on creating a roadmap for economic well-being.
This blog post explains various aspects of personal finance and gives you an idea of what your overall financial situation might look like. Before delving deeper into the topic, it is essential to point out that there are five outlines in the overall financial situation. They have savings, investments, financial protection, tax plans, retirement plans, but in order.
five aspects of your overall finances:
- Savings: You suddenly have to put your money aside with your savings to cover your financial needs.
- Investing: Investing is important to increase your money so you get what you want.
- Economic Protection: Economic protection now under insurance guarantees that you and your family will sail through difficult times.
- Tax Plan: By making an appropriate tax plan, i.e. proper expenses/investments, you can reduce your taxable income, and ultimately save a lot of money each year.
- Estate Planning — to protect your legacy
- Retirement Planning: Finally, retirement planning is important to secure a large bank balance for your twilight needs only.
Each of the six aspects is described in detail here.
Number 1: Saving
Suddenly the need for money can arise at any time. It could be as mediocre as a car breakdown, or it could be as serious as losing a job. However, such an emergency can be resolved if you have enough savings to meet your needs. Thumb In principle, funds for your urgent needs should be 3 to 6 months of your expenses.
Debt products like Liquid Funds are a convenient option to store the funds you need in an emergency.
And three reasons to support that idea:
- First, liquidity funds offer slightly better returns than savings accounts, even without guaranteed income.
- Second, these funds are so fluid that they can be withdrawn after 7 days.
- Third, money is safe because of low credit and interest rate risk.
Number 2: Investment
We often confuse or consider investment and savings as synonyms. Saving is putting money aside, but investing is putting money/buying assets such as stocks, bonds, mutual funds, etc. to grow your money.
In terms of investment, mutual funds are a great investment option if done right. However, when investing in mutual funds, it is essential to pay attention to choosing the right fund for your investment. Otherwise, it can be counterproductive.
Therefore, it is imperative to invest according to your investment requirements and duration.
In other words, the guesswork here is to dream of changing your economic goal and setting a period around it. Next, choose a mutual fund that matches your investment period.
Well, which fund to choose based on your financial goals?
1. Short-term goals: Any goals that must be achieved within three years are short-term goals. There are several ways you need to prepare your funds within this period, from saving for travel to saving for phone calls.
Best investment options: liquidity funds, ultra-short-term funds.
2. Intermediate Goal: If you set a goal that needs to be achieved within 3 to 5 years (for example, housing down payment), you can set it as an intermediate goal.
Best Investment Options: Short-term debt funds like hybrid funds, ELSS, banks, PSU debt funds
3. Long-term goals: Long-term goals are milestone events such as retirement, children’s education, and marriage, that is, goals with a duration of at least five years.
Best Investment Options: Multi-Cap Fund, NPS (Retirement Only), Large Cap Fund.
Number 3: Financial Protection
We knit some dreams in our lives to make those dreams a reality You can make an investment plan for. But if we don’t protect them in a safety net, the same can be held responsible. The safety net is insurance.
Number 4: Tax Saving
We pay taxes according to the tax slab, but we can reduce taxable income to some extent through the right investment / purchase. There are 70 exemption and deduction options that can reduce your actual taxable income.
Number 5: Real Estate Planning
Real estate planning is to prepare for the task of managing an individual’s wealth base in the event of personal helplessness or death. The plan includes the bequest of the heir’s assets and the settlement of the inheritance tax. Most heritage plans are set up with the help of lawyers with experience in heritage law.
Real estate planning is important to everyone, regardless of age or property. Real estate planning avoids taxes and legal alliances and tries to devise funds as needed. Even if the heritage plan specifies the right person to take care of the child, you can also take care of you helplessly.
Number 6: Retirement Planning:
Retirement is one of the most important steps in life and can be happy or miserable depending on the planned method. It also applies to financial planning.
Now financial planning for retirement is a two-step process. The first is savings for retirement, and the second is to generate income from assets during the retirement period.
Wrapping It Up:
Control your finances and assume that the power of choosing a life without worrying about money is two more difficult than we get a dream. But if you put it in a frame that covers all aspects of a complete financial chart, the financial future can be perfect!