Basics of personal finance
It’s very important to keep your foundation strong to sustain anywhere for a longer period of time. Similarly, to succeed in personal finance, you need to make all your basics of personal finance clear first. This is what we are going to do in this article. We are going to discuss the basics of personal finance that you must know before beginning your wealth creation journey.
Streamlining cash flows
Things look better when they are free from any unwanted things. Similarly, you need to declutter your cash flows to have well-streamlined cash flows. This decluttering of your cash flows will help you to know where exactly you need to expend and have clarity on your income, expense and savings. This will help you to understand how much cash flow is available with you, which you can dedicate towards your financial goals.
Debt management
Many times, it happens that people aim for their financial goals and investments straight away without clearing all the basics. Debt management is one such thing that people must focus on. Here, you first need to understand the sources of your debts such as home loan, car loan, personal loan, credit card debt, etc. Then, segregate them between good loans and bad loans. Good loans are those that are taken for some of your needs such as first home, first car, education loan, etc. and bad loans are those which have higher interest rates and are taken for your wants such as personal loan and credit cards debt. Understanding the basic difference between the two will help you to get rid of bad loans as soon as possible.
Retirement
Retirement is something that people sacrifice over child’s education and also, to fulfil immediate wants such as vacation or buying that expensive gadgets. Many argue that they regularly contribute towards retirement via employee provident fund (EPF), public provident fund (PPF), national pension system (NPS), etc. However, it is important to have a portfolio with a proper mix of debt and equity, depending on one’s risk profile. EPF, PPF, etc. though are useful but lacks flexibility. Therefore, having a proper asset allocation in place is important. If you have just started your first job, then it is recommended to contribute any amount possible towards retirement. The early you start, better the amount you can accumulate for your retirement.