5 Essential Personal Finance Tips for Begginners

  5 Important Financial Tips   

1.  Budget 

It is one of the most important things you should consider before any financial investment. A proper well designed budget can help you to make prior fund distribution on different investment avenues while ensuring emergencies and saving funds to keep up your monthly expenses.

 

Setting financial goals : If your future goals are short, medium or long term. such as home down payment, vacation, buying a car or wealth accumulation, education or retirement. They are important while forming your budget allocation.

Allocation of funds : distributing your funds is the most effective way to manage them. You can distribute your funds for saving, expenses, emergencies, and investment. 50/30/20 rule is effective in which 

50% needs, 30% wants and 20% for your savings and investment. :)

1. Emergency fund

 To play safe you must secure a certain amount of funds. You can save it from your monthly income and add a fixed amount per month. Speaking from statistics you should maintain at least 6 months expenses, to bear at least 6 months of groceries, rent and other essential expenses. You can deposit 1lakh for a fixed deposit in bank, not large amounts because you can take them out in case of urgency.   

1. Compound interest 

 occurrence of interest rate more than one time is called compound interest, from investment point of view it positive because you will get addition in returns but vice versa it can accelerate your debts too. 

• Compound interest = total amount of principal and interest in future (or future value) minus principal amount at present (or present value)

• Savings accounts and money market accounts: The commonly used compounding schedule for savings accounts at banks is daily.
• Certificate of deposit (CD): Typical CD compounding frequency schedules are daily or monthly.
• Series I bonds: Interest is compounded semiannually, or every six months.
  
• Loans: For many loans, interest is often compounded monthly. However, compounding interest may be called something different, such as "interest capitalization" for student loans.
  
• Credit cards: Card interest is often compounded daily, which can add up fast.   

1. Debt management 

Managing your debt can feel challenging, since you have to pay them with regular intervals with interest. To deal with it you can follow these tips :

Always pay on time :  To maintain your cibil score. Your payment history makes up 35% of your credit score, if you have missed any payment try to clear it as soon as possible.

Pay more than minimum :  liability is not considered a good thing in the financial world, if possible try to pay more than you are required to, so that you can escape your loan predicament.  

know your limits : Higher utilization signals render rely too much on credit for frequent transactions, Improving your credit health is good for you, for which you should try to pay your debt regularly and increase you credit limit. 

1. Financial literacy To Make Informed decision 

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.

ADVANTAGES 

1.  Financial literacy can prevent devastating financial mistakes
2. Financial literacy prepares people for financial emergencies
3. Financial literacy can help individuals reach their goals
4. Financial literacy gives rise to confidence

By improving your financial literacy, you empower yourself to navigate complex financial situations confidently, helping you avoid common pitfalls and make smarter choices for your financial future.