In this article, I will share the personal finance lessons that we should follow to lead our financial life smoothly and what school or college will not teach us. Society tells us to get educated and get a job and all is well. But unfortunately, it is not that simple. For you to succeed in a world that is running behind the money, you should know a lot about how to manage the finances that school teaches us. Let’s go into the lessons.
Save
Saving money is the first step to achieving financial freedom. Money is easy to spend and hard to save. Between the increase in the cost of living and low income, saving money tends to be last on people’s minds and given the least priority. For most of us with regular paychecks, a decent savings should be at least 15-20%.
Pay Off Debt :
This is the second-best thing to do if you have debt. Pay off your debt before saving if you have credit card bills or personal loans with high-interest rates. Even if you save money without paying down your debt, you will end up paying more money over a period of time as the interest charge you pay is usually higher than the interest you get or earn if you save.
Budgeting :
Budgeting allows you to streamline your cash flows. Have you often been in a dilemma saying I have no idea where my money goes? The reason you make this statement is we don’t have a track on our cash flows. Budgeting makes us monitor our income and expenditure and keeps us largely in sync. Note down all the incomes in one column and expenditures in other columns in Excel. If you do this, you will come to know what your income is and how much you are spending. Spending should not be more than 45-50% of take home.
Emergency Fund :
The emergency fund builds us safety nets for preserving your savings in times of emergency. Typically a medical emergency, a job loss, or unexpected high expenses for which we are not prepared. A rough thumb rule is, to keep aside six months’ living costs including everything. The emergency fund makes us not worry about money when we require it.
Insurance :
Insurance has its own purpose. It is not a wealth-creation product. We should have insurance if there are dependents on us, in order to take care of our loved ones if anything happens to us. Typically term insurance is better.
Invest :
Investing makes you become wealthy. It helps to beat inflation and makes money grow. Compounding makes us build the corpus for retirement and achieve other financial goals. Investing makes us earn higher returns compared to banks’ fixed deposits and other bonds.
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