Building an emergency corpus is a crucial aspect of your personal financial planning and money management. The size of the fund should be three to six months of monthly expenses that is necessary to survive. This money can provide financial relief during job loss, illness and accidents. Now, how do you define an emergency? Paying your credit card bill is definitely not one of them.
This is a fund that is set aside for emergencies and the rule is you should never touch it unless there is an emergency. 5) Emergency corpusĮven before you start saving and investing, it is necessary to build an emergency corpus. Simply, if we can reverse the cycle and plan ahead, then we can save ourselves from some unnecessary stress and losing money. Often people end up taking personal loans for such purposes and keep on paying for it, including the interest rate, for the rest of the year. If you keep aside a small amount every month targeted towards a particular expense, then at the end of the year you will be financially prepared for it. There are yearly expenses from tax/insurance payment to holidays that can be planned ahead. It can completely destroy the health of your personal finance. Refrain from using credit cards as much as possible. Probably, for your second car you might plan to buy the Rs 20 lakh model, considering your salary and net worth will increase in the next five years. you can comfortably repay this amount within five years. Now, with easy bank loans it may seem that you can buy a car worth Rs 20 lakh, whereas you can afford the one which costs Rs 7 lakh, i.e. For example, your car is a depreciating asset and hence, it is always suggested that you buy in the range for which you can pay back the loan within five years. It might seem easy loans and credit cards have increased our power to buy more but there is always a catch.
There are many things that we want, but it has to match with what we can afford. Separating your need from your want is very crucial for personal financial planning. Also, if you feel that you are spending more than you can afford, then make sure to check on the expenses especially the variable factors. Make sure that you do not spend more than you have allotted in each of the buckets.
Making a personal budget movie#
and then prepare a budget for the variable expenses like grocery shopping, eating out, movie nights and others. First make sure to pay for the fixed expenditures like home loan/ rent, car loan, utility bills etc.
Identify the absolute essentiantial and allot money accordingly. Track your family expenses for two to three months to find out how much is spent on what task every month. More importantly, priorities change from time to time, hence, change your personal financial plans accordingly. This practice will help you understand how much you need to save for each purpose and for how long. Most people fail to manage their personal finance only because they do not have a clear agenda set for themselves. The process of writing them down will help you simplify things. List your priorities and write them down.
For example, when do you want to retire? What are your plans after retirement? Whether you want to buy a house? Whether you want/have children and if yes, then what are your plans for them. It is impossible to predict the future, but there are few basic questions that need to be answered early on in life. Here are the six steps to create a personal budget for yourself. So, if you are worried about your personal finance and hardly have a clue what to do about it, then this is exactly how you start. If money management is the first step towards wealth creation, then creating a personal budget is the first step towards money management.
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