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Financial
Planning, we all heard about this term but are we used to it? We all try to
save money in some way or another but in the end, whether all these practices
are worth it? Everyone tries to make purchases, keeping in mind the budget,
prices, and also financial resources.
Financial
planning is important to develop financial status. This can be achieved if an
individual develops the habit to bifurcate their expenses as well as their
earnings into Short term, Intermediate, and Long Term.
Short Term:
This is less than 3 months. Any type of expense that is to be paid within 3
months classified as short term. Take an example of your credit card bill.
Intermediate:
This takes 3-12 months. Any income which will require 12 months to give the
return.
Long Term: It
takes more than 12 months to achieve.
The
allocation of expenses and income to the above 3 categories will help you to
keep track as to when you require the money that is to fulfill your short,
intermediate, or long term requirements.
Here are
the tips that can help to plan your finances with better efficacy.
1. Pay Down the Highest
Interest-Bearing Debt First.
If you have
taken more than one loan (Home loan, business loan, education loan), try to pay
off the loan with higher interest. This will save you in the future. You will
be mentally relaxed as you have discharged the loan at a higher cost.
2. Build Multiple Streams of Income.
Don’t
depend on a single source of Income. If you have excess cash try to put or
invest in Interest earning security like bonds, debentures. This will ensure a
backup and act as an auxiliary to main source. Many people have their Rental
Income as their second source.
3. Income Does Not Determine Wealth.
Income
means what you earn by doing a job, running the business. Wealth is something
that you build out of that income. Wealth depends on how you manage the income
by not investing it in materialistic things.
Because it’s
not just how much you earn, it’s about how much you can keep, save, invest, and
Multiply!
4. Differentiating
Between Good Debt and Bad Debt.
It’s a myth
that debt is always bad. It is not always true. Even interest that is paid on
debt taken for business helps to make tax decisions. Good debt is one which
have positive externalizes like Student Loan taken for collage. Bad debt is
something which converts profits into losses.
5. Do Everything in Moderation.
Excess of
everything is bad. Always make limits for spending, expenses, or even
investing. Never do any of such things in emotional pressure. Excess of investing
will leave you in a situation to borrow. The same is with the expenses.
6. Develop a Do-Able Budget.
Always
remember the more you write down things, the possibility of doing things will
increase. Try to develop a budget for your monthly expenses and Incomes which
describes as to what portion of your income allocated to which expenses. This
will help you with the allocation of your earnings.
7. Track Your Income and Expenses.
Once the
budget is developed, observe each day and analyze whether you have spent the
same in the manner described in the budget. Track where your expenses are
going. In the modern day if you made any payment online through wallet it will
show you the summary of expenses.
8. Pay Bills on Time.
Always pay
your bills on the due date. This will help you to avoid the extra cost in the
form of interest. Don’t pile up the outstanding bills at one point in a month.
Try to make different due dates to avoid a one-time outflow of cash.
You can use
the Auto Payment facility provided by the banks and payment merchants, to avoid
missing out payments.
9. Spend Less Than You Earn.
Don’t spend
on things which you can’t afford, just for flaunting in the group or idolizing
some celebrity. Many people spend on things just to follow the trend in the
market. This attitude proved to be painful in the long run.
Bonus Advice.
Never
forget the tips from 1 to 9. Always remember its more important how you utilize
the earnings than how much you earn. There is a Rule called “20/30/50”. Always keep
50% for your needs, 30% for your wants (that is different from needs), and 20%
for your investment.
Utilizing
earning efficiently can make anyone on any income rich. Always wait for 30 days
before you purchase any “wants”. Most often you did not want it any more. I
have experienced it.
Written by
– Utkarsh Samaiya
Edited by –
Adrija Saha
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