Rule no. 1 for personal finance:
Start saving
This is a simple and old lesson, but it is still relevant today. Doesn't matter how much money or wealth you have in investments or assets but you should have enough amount of money which can help you in tough times.
And that's where
the problem starts. not because you are young. Some people just don't save. Not
just that, they don't invest; rather, they spend all the money they have.
This can be cool
for the present, as you have a house to live in. Your parents might still pay
for your basic needs or for expensive purchases. But once that's over and you
age, real-world problems start.
So, how much should
you put aside or invest? More to come shortly...
Rule of
thumb:
The first basic
rule for saving Divide your income into three parts:
•
Now 50% of your income is used for needs.amount needed for the things
or practises you cannot live without, such as living expenses, food, and
transportation.
•
Next, 30% of your income goes for non-basic needs. such as
restaurants, movies, hotels, tours, and other refreshment activities.
•
Now the remaining 20% should be your savings. You should keep it and
forget it. Do not use this amount for buying liabilities such as gifts,
decorative items, or refreshments at restaurants or fun parks.
Lets see in
brief...
•
50% of your needs.
Well, this includes
your house rent, food, electricity, and water bills; insurance for a car or bike; health; life;
loan repayments (if any).
Basically, all the
big bills that are required to be paid.
•
30% is set aside
for desires.
This varies from
person to person. You can hang out, have a dinner in fine dining restaurants,
buy fancy clothes, and spend on entertainment such as Prime or Netflix, or go
to the movies, or have some food (other than what is necessary).
Just remember that
it is hard for some people to limit it under 30%, and this may end up eating up
your savings.
•
20% remaining
What will you do
with your savings now? To clarify, this should assist you in growing.
Simply put,
•
you can put it in a bank FD (fixed deposit).
•
But you can also invest it in long-term financial plans or an
emergency fund.
•
It can also be used as an EMI or down payment for your house.
Imp: Try not to put
your car's EMI here, as your car already is a liability.
Cars need
maintenance, and this already goes into the 30% slab.
Important Advice:
Don't use your savings for small-time benefits. Always consider the long
term when saving.
What should you do
if you can't keep your emotions under control?
Put your saved
money into non-liquid investments. non-liquid investments such as gold, bonds,
or real estate (not going deep as many more are covered in other articles).
This way, you can keep your money secure and growing while not worrying about
what to spend it on.
Money can be a
confusing and worrying topic. And a lot can be learnt from it :)