How to Manage Your Money Wisely? An Overview

Money management is a life skill that will assist you in reaching your financial objectives. No matter how much money you make, if you don’t know how to handle it, you won’t be able to build wealth in the long run. To attain your financial objectives, you must understand how to manage money effectively. There are numerous applications on the market that can help you manage your money easily, or you can consult a financial counsellor for expert money management. Your finances will be planned based on your income, debt, financial goals, investment horizon, and retirement. In this essay, we will learn how to handle money and money management tips.

What is money management? 

The first thing you should learn when you start working is how to handle your money. Budgeting, savings, spending tracking, tax management, and investing are all aspects of money management. The primary goal of money management is to build a method for reducing unnecessary expenses and spending on products that provide value to your standard of living and long-term investment.

Money management varies by the person due to differences in income, lifestyle, age, family structure, and other factors. You may attain your financial objectives with proper money management.

How to manage your money? Money Management Suggestions

• Prepare a budget: The first step in financial management is to create a budget. Budgeting is the process of estimating how much money you will need to meet your requirements, desires, and savings. Having a projected budget can allow you to better manage your finances. If you don’t want to make excuses when it comes to budgeting, consider the 50/30/20 rule. It allows you to spend 50% of your money on necessities, 30% on desires, and 20% on savings and investments. Assume your monthly income is Rs. 1,000,000. So, based on this approach, you should set aside roughly Rs. 50,000 for necessities like grocery shopping, rent, and basic utilities. Rs. 30,000 can be spent on desires such as eating out, traveling, watching movies, and so on.
• Track your spending: To get an accurate picture of your spending habits, you must log your spending. You can inventory all of your accounts, including your debit and credit cards, and there are tools available on the market to track and reduce unnecessary spending patterns. Before making any spending decision, consider whether you need or want the product; if not, cut them off.
• Manage your credit: When you need money, good credit management will help you qualify for loans. You should not spend more than 30% of your credit limit because excessive credit use will harm your credit score and upset your budget, although timely payments can help you build a strong credit score. So, whenever possible, attempt to use a credit card. Loans with high-interest rates can eat away at your funds, and late payments can result in a penalty. To avoid paying the penalty, you should pay off your obligation as soon as possible. Paying off your debt not only reduces your loan debt and accrued interest but also saves you money on interest payments.
• Learn more about personal finance and investment: Personal finance education can help you improve your financial life and make better financial decisions. Personal finance assists you in managing money in all aspects of your life and increasing your cash flow. Anyone, regardless of age, income, or career, may study personal finance. To take charge of your financial future, you must commit some time to read books or completing online courses on personal finance and investing.
• Create your retirement fund: You will no longer receive a salary or regular income when you retire, but your expenses will remain the same. You need financial support to maintain your everyday costs and live your post-retirement years, which is why you should start planning your retirement now. Start saving and investing for your retirement fund in a balanced and safe alternative such as a balanced mutual fund or large cap mutual fund to ensure your independence in the future. You can also invest in PPF (public provident fund) and NPS (national pension program) (National pension scheme). The idea is to maintain and develop your wealth at a steady rate.
• Create your emergency fund: An emergency fund is a money set aside to cover unexpected or abrupt needs. The fund should be liquid, as this allows you to convert your money whenever you desire. Your funds might be invested in liquid funds or money market instruments. The primary goal of an emergency fund is to protect or preserve your capital. Because you never know how long it will take to find a new job, your emergency fund should include 9-12 times your monthly income. You should also bear in mind that your savings and emergency fund are separate. Every month, you should set aside 10-20% of your money for an emergency fund. You can build your emergency fund by putting 25-30% of your money in cash, 30% in gold (physical or digital), and 40% in debt instruments. Alternatively, you might invest your emergency cash in a high-yielding savings account and think of it as an insurance policy against unforeseen bills.
• Manage your Taxes: Begin learning about taxes before you receive your first paycheck. You should be familiar with income tax and understand how it works. It will assist you in calculating how much tax is levied and how to claim deductions. Tax deductions can be claimed by investing in tax-saving instruments under Section 80C of the Income Tax Act of India, allowing you to save a significant amount of money.
• Start investing early: The earlier you begin investing, the higher the interest rate you will earn on your money. The power of compounding refers to the fact that you earn interest on the interest generated on your investment. Even if you have little finances, you can begin your investment journey by establishing a systematic investment plan (SIP) in mutual funds or index funds. Regular investing will assist you in developing disciplined spending habits.
• Have insurance to protect yourself: You should constantly be prepared for life’s uncertainties, such as medical emergencies. Health insurance, term insurance, and critical illness insurance can help you safeguard your family from financial hardship. It will enable you to provide financial assistance to your loved ones by covering the costs of hospitalization, illness, or medical treatment.
• Set financial goals: Financial goals assist you in staying focused and avoiding overspending. Your financial objective could be to buy a house, marry, or pay for your children’s school. So, you arrange your budget, savings, and investments depending on your financial goals.

To summarise, the money management techniques shown above will improve your financial life and prevent you from any financial disaster. If you are still unsure or are a beginner, you can see a financial advisor to help you organize your finances and achieve your investing goals.