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10 basic principles of Personal Finance

Every individual has a unique set of financial goals and challenges, which needs customized personal financial planning. But here are the ten principles of personal finance that would apply in every individual's life.

October 04, 2014 10:20 IST | India Infoline News Service
The financial lives of every individual has become complex as there are multiple incomes and a number of expenses. Such scenario calls for the need to keep the finances in order so as to avoid challenges in future. Every individual has a unique set of financial goals and challenges, which needs customized personal financial planning. But here are the ten principles of personal finance that would apply in every individual's life.
 
Risk & Return: People save money and if it is not invested in the right instrument but kept as it is in a safe box then probably it will amount to zero savings over a period of time. Thus, it is important to invest money that give higher returns on those savings, which will help money grow over the years. Higher the risk, better are the returns but such instruments should elected based on a person's risk taking ability.
 
Avoid Eggs in one basket: Since there is no guarantee as to which asset class will perform than the other, therefore, it is recommended to distribute the investible surplus across different asset classes like debt, bonds, equity, gold etc.
 
Consider Taxes: Taxes are inevitable and so your investment should earn more after applying taxes and not before. Take care that taxes do not nullify the returns and fail to beat inflation.
 
Unforeseen Future: Personal finance is all about planning and implementing about future events which is unpredictable. Hence, an individual should prepare himself to meet any adversity or emergency that he might face at a future point of time.
 
Do not linger on: We humans have tendency to keep things on hook untill and unless there is a warning call. Why wait for the danger to arrive, and so a proper planning of personal finances should be done at the earliest, without the slightest delay.
 
Understand first: Hard earned money could not be put blindly into any asset without knowing its pros and cons. An individual should strive to know in an out of every investment where he is putting money, which will continue to guide him through his future decisions.
 
Sales Trap: Avoid getting caught into sales trap as their will be professionals who could mislead you just to earn their commissions. Like said earlier, it is recommended to have your own set of research and information ready to prevent misbuying.
 
Saving is paying yourself: If people start changing their approach towards savings from being a task to a simple thought of just paying to your own first could bring about a positive impact on your personal finance.
 
Priorities: In a bid to save money it will be cruel to distance yourself from some of the important things in life like vacation or spending leisurely. Try to live life in a moderate way but not sacrificing your wishes completely.
Keep It Constant: Saving is not a once in a lifetime activity, so keep saving and take care of personal finances on a constant basis. 

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