Personal Finance Basics
The term “personal finance” refers to managing your money as well as saving and investing. Budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and estate planning are all part of it. Financial Literacy is very important in your life. If you become financially literate and learn how to handle money, then maybe you won’t have problems in your life and you will know how to use money properly. If you become financially literate in your life and learn how to handle money, then your life will become easier, and you will reach one step closer to becoming rich. The world of personal finance is very big and can look very scary. There are many big words like Risk, Returns, Mutual Funds. What actually are these?
If you start in your 20s then you can get many advantages if you have knowledge of personal finance. So, today we will talk about 4 such things that you can use in your life, through which you will be comfortable in the future, and increase your money. These four things include Passive Income, Insurance, Saving, and Debt.
Everyone knows about savings, that we need to save money. But how do we do this? Most people call this the 50-30-20 rule, where you invest 50% of your income on your needs, 30% on your wants, luxuries, or other things, and the remaining 20%, you can keep collecting it as an emergency fund or an investment fund. Depending on the money you save, you will get your savings or investment fund, through which you can increase your wealth and income.
Now let’s take the example of 2 people whose salaries are the same. Out of both, one of them saves Rs.5000 per month, which makes Rs.60,000 per year. The other one saves Rs.1000 per month, which makes Rs.12,000 per year. The person who is saving the money also might be investing it and they’re ahead of where they were a year ago. The one who saved Rs.12000, spent the money on their life and enjoyed their lifestyle but they are in the same place, where they were a year ago. It means Wealth does not grow only by saving money. So how will you increase your wealth? Wealth increases from passive income.
Passive income means the money for which you don’t have to work every day or put in the effort. After working once, whether you sit or sleep, money should keep flowing in your account. Most people rely on their efforts and active income like on their business or salary income to make their life better. For the purpose of increasing their salary, these people will keep putting in their strength and efforts. Then there are other people who will make their money work for them and make their money run for them instead. After working, these people can sit and see their money grow.
Another important thing that you need to know in your 20s, for your Personal Finance is Insurance. What is Insurance? If I give a company some money in advance so that, in the future when I am faced with any difficulty or any unexpected expenses, then they will cover it for me. There are many types of insurance. You can buy the insurance of a car, insurance of a house, medical insurance, or even the insurance of your life. Experts believe that getting medical insurance in your 20s is a feasible option. If you are healthy in your 20s and want to buy medical insurance, then you will be able to buy it for a lesser amount. In our life, we must have observed that most of the time these ‘unexpected expenses’ are medical expenses.
The research was conducted in America, and they got to know that 62% of people had a shortage of money due to medical expenses. So that these situations don’t occur in your life, and you get the money on time during emergencies, insurance is bought. If you are the sole earner in your family, then you can give life insurance a thought. If something happens to you in the future, then life insurance gives your family payment and coverage, so that in the future, they can handle their life on their own. You will see very different and very complex products. But if you are starting now, please keep your eyes only on simple insurance.
Loans or debts.
You might have heard in your house that loans and debts are not good things, and we should not take loans or debts throughout our lives. Loans and debts should be taken for things that you need or things that will improve your life. If you need a bike or scooter to travel to work, or you need an education loan to get a good degree, taking debts for these things is logical.
Credit cards have become common these days. Many people use credit cards. But people don’t know that credit cards are just debts taken for a month. If you don’t pay your credit card bills by the end of the month, then every coming month, you are just adding more and more interest to that bill from your income. So if you are buying useless things from your credit card, like, if you are doing online shopping, and not paying your whole credit card bill for months, then you will keep paying interest from your income.