Understanding the Basics: What is Personal Finance?

Imagine this: you’ve just landed your dream job, and the congratulations haven’t even stopped! But amidst the excitement, a tiny voice whispers, “How will I manage all this money?”. If this sounds familiar, welcome to the wonderful world of personal finance!

What is Personal Finance?

Think of personal finance as the fitness plan for your money. It’s about taking control, understanding where your money goes, and making it work for you. It covers everything from budgeting and saving to investing and planning for retirement.

Here’s what’s involved when me or someone says “Personal Finance”:

• Budgeting: It’s like creating a roadmap for your money. You track your income (salary, side hustles) and expenses (rent, groceries, entertainment) to see where your money flows.
• Saving: This is about setting aside money for short-term goals (vacation) or long-term ones (retirement).
• Investing: It’s about growing your money over time by putting it in assets like stocks or mutual funds.
• Financial Planning: This is the big picture stuff – planning for emergencies, big purchases (a house!), and your golden years.

We can call these four aspects the pillars of personal finance. These are what makes personal finance complete and meaningful.

Also, for someone who finds the phrase “personal finance” to be a jargon, knowing about these four pillars ensures that it is no more a jargon.

Now, before you cringe, here comes the important thing you want to hear…

Why is Personal Finance Important in India?

At a NSE event to commence the World Investor Week, GP Garg, executive director, Securities and Exchange Board of India (Sebi), said,

In a country like India we have close to 80% literacy, but when it comes to financial literacy we are not that lucky. Last year, National Centre for Financial Education did a survey which says that only 27% of Indians are financially literate. It means that we have a long distance to travel and that puts a lot of responsibility on all the institutions including exchanges and Sebi to see how best we take the message of financial literacy across the country.

This means a large portion of the population might be missing out on crucial financial security.

Personal finance is not about having the knowledge, or following some strict principles about money – most people perceive it as some strict school rules. In fact, personal finance is quite the opposite where you take all the control of your finances and feel the peace because of that control.

Here’s why personal finance is important for you:

• Peace of Mind: Knowing you have a financial safety net reduces stress and allows you to focus on what matters most.
• Achieve Your Goals: Want to travel the world? Put a down payment on a house? Personal finance helps you make your dreams a reality.
• Plan for Retirement: Let’s face it, we can’t work forever. Planning now ensures a comfortable post-retirement life.

So, how to get started with Personal Finance in India?

Here comes the big question! How to get started? Here’s how to kickstart your personal finance journey:

Track Your Expenses

For a month, note down everything you spend, from groceries to that movie ticket. This will reveal your spending habits. There are many budgeting apps like Mint or ET Money that can help.

Create a Budget

Based on your income and expenses, allocate funds for different needs. Prioritize essentials like rent and food, then factor in savings and fun money. Many free budgeting templates are available online.

Set Financial Goals

What do you want to achieve with your money? Write down short-term and long-term goals and create a plan to reach them.

Explore Savings Options

Open a savings account – many banks offer high-interest savings accounts. Consider investing in instruments like the Public Provident Fund (PPF) or National Pension System (NPS) for long-term wealth creation.

Remember: Personal finance is a marathon, not a sprint. There will be bumps along the road, but with discipline and the right tools, you can build a secure and prosperous future.

Bonus Tip: Grab your copy of Personal Finance Essentials and start your own journey confidently.

Taking Charge of Your Financial Future

Personal finance might seem complex, but it’s all about making smart choices with your money. By understanding the basics and taking action, you can unlock financial freedom and peace of mind. So, take control, and make your money work for you!