Personal finance is a subject that everyone should study as early as possible in their lives. Personal finance is merely understanding how money works and what you should do to save money and grow your wealth over time. It includes multiple basic concepts like retirement planning, financial health, credit score, etc.
Let us look at 51 simple and easy to apply personal finance tips that have the potential to change your life and save you money.
- Pay Yourself First - This is one of the first rules of money management. A part of what you earn is yours to keep. The moment you get your salary, you should transfer at least 10% of it to a financial freedom fund and never use it.
- Make a Budget - A budget is simply a written down plan about how you will spend your money. It will give you clarity on your financial situation and prevent you from overspending. Getting into the habit of creating the following budget is one of the best things you can do for your personal finance journey.
- Have an Emergency Fund - A huge part of personal finance is minimizing risk. An emergency fund helps you deal with surprise expenses in situations like a car breakdown, hospital bill, or job loss. Having an emergency fund can reduce financial stress considerably and give you a sense of security.
- Save for Big-ticket Purchases - We often spend so much on little things randomly because the amount is so small that we rarely have money left for big-ticket purchases like renovation or a new car. It makes sense always to have a separate savings fund for big-ticket purchases.
- Live Within your Means - One of the first principles of money management is staying within your means. Your expenses should never exceed more than 80% of your income.
- Say no to Debt - The whole idea of personal finance is staying within our means. While it might make sense to take a loan in some cases like a home loan or a loan to expand one's business, it is essential to remember that you must have a good reason for taking the loan and a clear plan to pay it back.
- Avoid Credit Card - Studies have shown that people making purchases through a credit card are more likely to spend more than people paying through hard cash. We want to avoid making unnecessary purchases, and a credit card is expected to make us do the opposite of that.
- Save Tax - Multiple schemes by the government can help you save a lot of money on taxes. It is smart to be aware of all the legalities and make use of them for your benefit.
- Avoid Late Fees - Our fast-moving lifestyles often make us forget about our monthly payments, and we end up getting late on our phone bills, etc. You can even automate your regular payments through an app to avoid getting late.
- Avoid Unused Subscriptions - A lot of times, people buy a subscription to watch a single show or watch an available article but forget to cancel it later. Discussions in peer groups also often make us feel the need to subscribe to various things we do not use.
- Buy During Offseason - Doing thorough research before making a bug ticket purchase always helps us make the right decision. If you plan to buy an Air conditioner, it makes sense to buy it in the winters when they are more likely to offer schemes.
- Look out for Schemes - Personal finance is about making smart purchases. If you ever find an opportunity to save, no matter how small it might seem, avail it.
- Avoid Impulse Buying - Controlling your expenses is a huge part of personal finance. We should make it a habit to think twice before making any purchase and rethink if it is the best way to spend that money.
- Keep a Track of your Spending - Using a finance tracking app to check how much you are spending and where you are consuming is a necessary exercise. As the saying goes, 'You cannot control what you cannot measure.' Using an expense tracker is the best way to measure and control your expenses.
- Use Public Transport - We should always stay on the lookout for reducing recurring expenses. If you have a decent public transport facility, consider taking that to the office instead of your car. It is not only going to help your finances but also the environment.
- Avoid Addictions - Controlling your expenses is essential, and it becomes difficult to do that if you are addicted to certain habits. Avoiding drinking and smoking will help you with your health just as much as it will with your financial goals.
- Go Green - Saving on electricity bills through switching to LEDs also comes under acceptable finance management practices. Remember, financial literacy is a habit and not a one-time thing.
- Set Financial Goals - Written down goals have a lot of potentials. If you set financial goals for yourself and regularly check on them, there is a much higher probability of achieving them.
- Invest in Options with a Lock-in Period - Always invest some money in options like a public provident fund, fixed deposit, etc. There is some difficulty in withdrawing the fund. Buy in Bulk - Buying in bulk can get you extra discounts and save you some money. You can also avoid additional trips to the grocery store to protect yourself from travel and impulse buying expenses.
- Write Down Your Financial Plan - Check out various financial planning tools and formats. It will help you understand your progress and also give you motivation.
- Discuss Finances with your Partner - Finance planning can never be successful if you and your partner are not on the same page about it. Make sure your goals are in sync, and you two are together working towards achieving them.
- Automate your Investments - It is natural sometimes to get tempted to spend a little extra on yourself sometimes. However, to ensure you do not delay your financial goals, it is advisable to automate your investment plans through a SIP so that the given amount gets deducted from your account as soon as the salary comes.
- Get Insurance - No financial plan is complete without insurance. It is essential to make a term life insurance and health insurance a part of your yearly budget.
- Buy Second Hand - Buying second hand in most cases can save you a lot of money while also helping the environment.
- Don't Ignore Little Things - While spare change or small ticket-sized subscriptions might not feel like a big deal if you check how much they add up to be, you will be surprised by the number.
- Avoid Recurring Expenses - It is best to keep regular costs as low as possible. It is easy to add one but difficult to get rid of.
- Take Care of Your Stuff - You can avoid spending a lot of money just by taking better care of the things you already own. If you are someone who breaks their phone often, you will know what I mean.
- Keep your Finances Clean - If you have multiple investments through multiple accounts and most of your paperwork is kept in a haphazard, it will be difficult for you to track progress and make changes that can improve your financial performance.
- Negotiate the Best Deals - Whether you discuss interest rates with your banker or your monthly rent with your landlord, learn to negotiate the best deals.
- Understand Hidden Expenses - Whenever you invest or use any service with long terms and conditions sheet that you are most likely not to read, make sure you are aware of all hidden expenses.
- Use a Bicycle for Shorter Distances - If the weather allows, using a bike for shorter distances is again a trick that can help your money management and the environment.
- Go for Shopping Alone - If you go shopping with your friends or family, you might end up buying things you don't need or buying a higher-priced item just for fear of choosing a lower cost item even if you like it.
- If your income increases, so should your savings - If you get a raise, instead of thinking of the next big-ticket purchase you will make, you should think about increasing the money you add to savings each month.
- Maintain a Good Credit Score - There are many ways to maintain and improve your credit score. You should check your credit score at least once a year and ensure that your credit report is error-free.
- Have a Different Savings Account - If you merge your savings account with your daily use understanding, you will be more likely to spend money from your savings.
- Review regularly - Making a financial plan is only helpful if it is followed and reviewed regularly.
- Read about Personal Finance - Personal finance is an ever learning process. It is always good to read new things about the subject and improve through other people's experiences.
- Do not invest in what you do not understand - While it is okay to consult a financial advisor, you should only invest in asset classes you know well. If you are being advised not to understand an option, then first understand it and then go ahead.
- Almost all 'get rich quick' schemes are fraud - Beware of any money-making scheme that promises you unrealistic returns.
- Understand your risk appetite - A lot of finance management is about managing risk. Everyone has a different risk appetite based on various factors. Understand your own and take your investment decisions accordingly.
- Know your net worth - Calculating your net worth can be a great motivational exercise. You will find out where you stand and will be able to set more explicit financial goals.
- Start investing - Once you understand inflation, you will realize how important it is to get an interest in your investment that exceeds inflation. Start investing as soon as possible, whether it is through mutual funds or any other asset.
- Create a Financial Calendar - A financial calendar will help you set targets for your various financial goals and keep you aware of your upcoming cash flows to plan for them beforehand.
- Check your Interest Rates - Make sure to check interest rates on savings accounts and fixed deposits for your and other banks and ensure that you are getting the best rates.
- Pay expensive debts first - If you have multiple debts to pay off, pay the one with the highest interest rate first.
- Tax benefit under Section 80C - Make sure you utilize the full tax benefit under Section 80C each year.
- Use less than 30% of your credit limit - Using less than 30% of your credit limit reflects your credit score well.
- Use 50/30/20 Budget Rule - Use this famous rule that requires you to spend 50% of your paycheck on needs, 30% on wants, and 20% on investing.
- Set money goals - Setting money goals beforehand will help you save more for higher ticket dreams like a vacation.
- Sell stuff you don't use anymore - We all have many items in our home that we do not use anymore, converting them to cash and investing that money is a significant financial decision.
- Do not take the journey solo - Your financial freedom journey can get a lot of consistency and thrill if you can find someone to take it with you.
We interact with factors daily like credit score, financial planning almost daily but are mostly unaware of how they affect us. The individuals who understand these concepts are better positioned to use their rule to their advantage and get rich. These rules have been there for a long time though the world around us is continually changing; the basic principles of money have remained the same.
