The growing demands, Fluctuating Economy, and increasing Inflation these days show us why focussing on Finance management is necessary. Syncing with the candlesticks of the Economy is as necessary as food.
Personal finance is the field of financial management that covers all the factors of managing your own money. The term itself covers, Savings, Investing, Banking, Mortgages, Insurance, Retirement Planning, and Tax planning. Managing your finances is a part of financial literacy which is becoming more important these days. Relying on some finance management firms may reduce your burden but still, you should be aware of your money and how it is working.
You may have some financial goals, but to achieve those goals, you have to understand every aspect of your money and how you should manage it. Personal finance is realizing your financial goal, let it be your short-term goal, Long-term goal, Insurance planning, Retirement planning, or Tax management. All according to your Income, Expenses, or living requirements.
In this article, we are going to learn about the Ingredients of Personal Finance and why managing your finances is important.
Personal Finance consists of :
Budgeting – the term consists of some more essentials like expenses, earnings, etc. Making your monthly budget helps you manage your money more consistently and reduces the burden of irrelevant expenses.
Banking – Now the field of understanding how money works in the bank will be quite technical in your first stage of financial management, But understanding some basic concepts of banking will make you capable of making wise decisions with your money. Understanding the Loan process, Mortgages, Interest rates, Annual charges, Credit card mechanism, etc., come under Banking.
Savings – Now that you have done your budgeting, you might have figured out how much amount you can save this month irrespective of any sudden expense. When you start thinking about saving your money, there will be more opportunities for you to think beyond just keeping your money in your savings account.
Investing – In times of Rapid inflation, Just your savings account will not help you survive the inflation. While earning and saving your money, you should also consider some even small investments either for the short term or long term which can help you Sync with the economy and will not let you behind struggling with the higher prices of goods.
Tax Planning – While managing all these, you have to comply with government policies also, which include income tax or any other tax for individuals. One should consider Tax planning also so that you might not create a tax burden on your head.
Insurance – It is part of your investment itself, But it becomes more important in its individuality too. Insurance comes with assurance for your belongings. In tough times or in losses, Insurance supports you over your emotions. Therefore, planning for your Insurance is most Important while managing your finances. For example- Life insurance, Car insurance, house insurance, etc.
Why Managing Personal Finance is Important?
Helps in syncing with Economy
Managing your finances makes you aware of the ups and downs of the economy and when you start working on your Money management, You will get to know more factors impacting your money. This will reduce the risk of losing money and help in Facing Inflation too.
Protects you from any Unwanted Financial Loss
No one wants to be a victim of any financial loss which shakes the whole stability of the family. To avoid any sudden or emergency financial attack, proper financial planning of your money is necessary. As discussed above in the factors of Personal Finance, Insurance and Investments can save you from any financial damage and instability.
Helps you in making Decisions.
As most of our decisions are dependent on money, when you manage your personal finances, it helps you in taking those effective decisions wisely and helps you in smooth decision-making. Financial decisions play an important role and to make those decisions effective, Personal finance is necessary.
Helps you achieve financial goals.
You might have some big financial goals in your life, let it be buying a home, a car Bike, or going on a world tour after retirement. But to achieve those goals money plays an important role. When you start managing your personal finances, you start learning more about how you can achieve your financial goals more easily without having any burden on your head.
Supports you in your retirement
As we have discussed in Factors of Personal Finance, You have to think about your retirement planning also, The stage when you will have no mode of direct earning but a passive earning will help you in that time. There are many ways you can secure your retirement, like a long-term investment, Insurance, etc. This will help you in your retirement time and support you.
So these were some important points which can easily show you, Why managing your personal finances is Important. It will be better if you start managing your personal finances as you get your first pocket money or salary. Because money is precious and using it wisely will only benefit you in all terms.
Working on your personal finances at an early stage will help you in the long term. People often do not find Personal finance important because they haven’t even realized what it can provide you.
Hope you found this article helpful, If you have any suggestions, feel free to write them down in the comment section below. or mail – [email protected]
Corporate Law Student | Strategic Business Management and Development | Managing Business Development Consultancy and Ed. tech Startups |