Personal finance is an aspect that remains in the turf of a select few. The rest are barely even aware of its meaning and scope. While traditional and cultural financing skills passed on to a generation definitely help with a select few aspects, much is lost in the transition.
Further, the sets of financial challenges that an individual faces today are much different from those faced, say, 20 or 30 years back. The consumption pattern of people has changed, new and interesting financing options have emerged, and financial tools like credit cards have opened the gateway to spending beyond the available income.
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While savings remain one of the essential components of personal finance, investment has become a critical decision leading to financial freedom and safety. We can easily cite a host of reasons in our day-to-day lives that reinstate the need to keep our finances disciplined, all equally crucial to ensure financial freedom and a secure future.
Let’s delve into a few aspects of disciplined financing that can lead to a robust economic future.
But first, it is crucial to understand why getting into disciplined habits is essential for your personal finance.
Why is it Essential to Practice Financial Discipline?
So many reasons command why you should practice discipline when handling personal finances. Here are some of them.
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Disciplined Approach Toward Financial Goals
Without necessary financial discipline in place, it is difficult to determine where exactly you want to reach economically, even though you may hold high aspirations. Practicing disciplined financing can bring your backhanded ideas of monetary success to the fore. They allow you to set goals with reasonable timelines.
Easy Tracking of Income As Well as Expenditure
Disciplined financing helps with income and expenditure tracking on a daily basis and in the long term. While we often do not consider such tracking to be useful, keeping your income and expenditure records handy provides scope for better allocation of funds as per usefulness and priority.
You can thus defer spending for non-prioritized expenses to a later date.
Better Use of Cash and Credit
Various credit instruments today like credit cards and buy now pay later financing enable easy purchase of products and services on credit. While this allows the freedom and flexibility of meeting your spending needs as and when required, it also loads your future finances with high liability.
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Practicing financial discipline can help in the better usage of credit and cash. For instance, if you have sufficient cash or money in your savings account, it is always wise to go for self-financing rather than using credit for personal finance optimization payments.
Corpus for Emergency Financing
Financial emergencies often push individuals towards loans and advances, ultimately disrupting the smooth flow of money. The repayment liability thus created is unplanned and can throw your personal finances into disarray. A well-planned approach to your money will, however, include an emergency corpus that should cover such uncertainties with convenience.
Futuristic Investment Possibilities
Not just the present but future financing is also equally crucial for the security and freedom of carrying on with your lifestyle. The discipline of income and spending leaves room for enough funds to park in futuristic investments. The corpus of investments made early in your career can result in significant wealth creation that endows your aspirations suitably.
Cover for the Autumns of Your Life
Old age brings natural physical struggles that make one incapable of earning, thus leaving them to the mercy of finances accumulated through the youth.
Financial security during the autumn of one’s life is, therefore, a crucial goal for an overall secured future that disciplined financing can irrevocably cover.
Now that you know why discipline is crucial for maintaining your personal finance let’s check out some smart ways to help keep your finances disciplined.
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How to Upkeep Your Personal Finances for a Secured future?
We bring you various tips and tricks to practice discipline when making personal financial decisions.
Create a Budget and Stick To It
Budget creation is always the first step to financial planning and freedom. It is thus crucial that you first start with a suitable budget as per your income and expenditure to better identify and prioritize your finances, aligning them with life goals.
Some essential components that comprise the personal finance basics and must be considered while creating a budget are –
– Tax savings
– Financial protection
– Planning for retirement
Keep these long-term aspects in mind and plan your short and long-term budget accordingly.
Make Timely and Full Bill and EMI Payments
If you use a credit card and/or have availed of a loan, you must be needing to pay the monthly bills and EMIs towards repayment of the credit used. While EMIs need to be paid in time without exception, credit card bills have the option of part payment.
Though this adds to user convenience, it is not financially prudent. Part payment leads to credit accumulation for the next monthly cycle, bringing down your total credit availability. Hence, making EMI and bill payments in time and in full is always advisable to keep your personal finance debt-free.
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Focus on Multiple Income Source Creation
People are mostly content with a salary if they are of the employed class or rely on business profits for all their personal financing needs. It is, however, not a healthy practice from the perspective of financial security for obvious risks that a single income source carries.
One should thus make way for alternative income sources to diversify their scope of earning and total income volume.
Some familiar secondary income sources include renting a property and investing in the long and short-term corpus. Today, with the aid of digital sources, you can also monetize on a specific skill you hold.
Know the Time Value of Money
Not many people are aware of it, but money’s value changes with time. A simple example to understand this is elucidated here. 10 to 15 years back, you could get a bagful of essentials in an amount as simple as Rs.100.
But today, the same Rs. 100 allows you to purchase only a handful of them. Similarly, while Rs. 15 Lakh could easily afford you a 2BHK purchase in a Tier-I city earlier; presently, you get only a 1 BHK in this budget.
So, what’s actually happened here is that the value of money eroded over time. It happened due to various factors, inflation being one of them. Knowing the time value of money can work in your favor when availing loans with long tenures for repayment.
Take Inflation Into Consideration for Investments
As inflation is the prime factor in causing money devaluation, your investments might not reap the same profits as visible. It is thus best to consider the inflation rate and invest accordingly.
A high inflationary pressure may be harmful for fixed-rate investments while investing in equity can be profitable during these times.
However, one must be well-informed of the associated risks. You must invest in these assets only under a professional’s advice for practicing financial discipline.
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Keep Your Financial Goals SMART
When creating goals for your personal finance, you can follow the SMART technique for better planning and execution. SMART (Specific, Measurable, Achievable, Relevant, and Time-bound) goals allow you to achieve better clarity of financing purposes and enable you to complete them within a set duration while keeping them relevant to your life aspirations.
In a world that looks for quick money, saving is a gem of a personal financial component. It can keep you afloat during knee-deep financial crises. With the following tip in place, you can focus on maximizing savings while keeping other financial parts optimally functional.
Instead of allocating monthly finances for savings, expenses, and investment separately, break down your income into costs and savings at a 60-70% to 30-40% ratio. It will help you set a clear budget for your monthly expenditure. Moreover, you can utilize 10% of your savings for making investments.
A part of the generated profit can be plowed back into the total savings. At the same time, a set monthly contribution continues, thus creating a significant corpus that allows you to depend the least on loans and advances.
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Utilizing these tips on personal finance in your day-to-day life while integrating them in the long run can keep you out of financial trouble. It also ensures a secured future. If your income falls in the taxable group, you can further plan tax savings by utilizing the deductions and rebates available under the Income Tax Act, 1961.