It is important that we start saving for a rainy day as early and as soon as possible. Personal finance management is essential in today’s day. In today’s capitalist society most people don’t think twice about taking loans to buy unnecessary and expensive things. The recession however has woken up most people and scared them into learning to manage their finances. Because of the daunting nature of this task or because of insufficient knowledge most people never know how to effectively manage their finances.
There are many steps to follow during personal finance management. These are some of the most essential ones you need to know to get you started.
Prepare your Budget
Preparing a budget will help you to curb overspending. Total your net income from all sources like work salary, any mutual funds, alimony, etc. Prepare a list of all your monthly expenditures and how much it is going to cost. These would include your bills, shopping and household budget, insurance premiums, etc. This is a great way to learn to adjust your expenses and create an estimate of your actual monthly expenses.
After preparing a budget the next thing you need to do is save money. Preparing a budget gives you an idea of where you overspend. Depending on your income, open a saving account and contribute a suitable percentage of it towards your account. This account should be used only in the case of emergencies.
Investing is a great way to earn a little extra income. The best place to invest is in the mutual fund of a reputed company. There is minimum risk involved when investing in mutual funds compared to other stocks. Further more you can leave the worrying caused as a result of volatile stock markets to experienced and professional fund managers.
Insurance is a great way to secure your future. It also reduces the risk of needing to empty out your saving account in the case of an emergency. You must at least take out insurance for your house, car and life. Choose a reputable company whose premium rates suit your income to avoid defaulting and wasting your money.
Tax Planning and Retirement Planning
Plan your tax so as to minimize the amount of your taxes. Reducing your income will bring down your taxable income. An easy way to do this is to contribute towards a retirement plan at work. As a result you can also plan for your retirement while planning your tax. You can also deduct your taxable income by donating to charity. State tax and mortgage interest will also deduct your taxable income. Having more dependents or getting married is another way to deduct your taxable income. You can also get tax credits for adopting children or college expenses.