The liberties that come with adulthood include the freedom to party, pick your preferred college, study your subjects of interest, meet new people and have a free hand to spend.
The branch of finance that mainly focuses on what you earn and how you spend, save, invest, pay taxes, estate plan, and borrow for yourself and your family is Personal Finance.
If proper management of personal finance is an art, then the young adult population of BHARAT ought to be artists. Being a master of this art is not as easy as pie. Before we get into how you can do that, let us shed some light on why you should. According to the 2023 Global Consumer Insights Pulse Survey by the leading accounting firm PricewaterhouseCoopers (PwC):
Around 74% of Indian respondents say they are concerned about their personal finance situation
63% of Indian consumers are cutting back on non-essential spending.
There was a significant decline in planned spending across all surveyed categories since the previous pulse survey in June 2022.
Such concerns increase tenfold if you are a young adult and have just begun to take charge of your financial matters. So, to avoid situations when financial decision-making seems like a tough nut to crack, you must be financially literate and practice financial discipline.
Here are ten tips on how you can go about doing that.
Before anything else, you should be well-informed about the commonly used financial terms. For instance, it can be challenging for you if you wish to understand the procedure of opening a new bank account if you are unfamiliar with the basic financial terms involved, such as KYC, QAB, MAB, monthly withdrawal limit, etc.
Estimate and Keep track of your take home pay post Deductions so that i will be easier to create a budget and allocate funds to each of your monthly need.
Before your salary is credited, make an effort to create and adhere to a monthly budget. You need a budget that ensures you do not overspend and helps you keep a record of your income and costs, much like how BHARATH has annual budget to manage it receipts and expenditures.
Make sure to avoid a debt that charges high interest. Morgan Housel in his bestseller, Psychology of Money said, “Most people’s biggest expense is interest, which comes from living beyond your means and buying things they think will impress others, which comes from insecurity. Avoid these two and you’ll grow richer than most of your peers.”
For instance, you can always apply for student loans based on your circumstances. A loan taken to pursue higher education is regarded as a future investment and is generally a good form of debit as it comes at a low-interest rate. Credit cards on the other hand, are generally regarded as a bad form of debit, even though they let you build your credit history.
Your savings are your future earnings if you are low on funds. They are not only useful in times of need, but they also demonstrate your financial discipline. Many people assume that saving money is incredibly difficult if you have a low income though we recommend you save even a small part of your income because you never know when you will need it. For instance, according to a report by the State Bank of India, “households in India saved a massive Rs 7.1 lakh crore during the pandemic-stricken financial year 2020-21.”This figure is attributed to fear of economic uncertainties during Covid-19 and the nationwide lockdown.
Take advantage of by compounding by starting your investments early. if you invest even a small amount in the years of you life, it will have more time time grow exponentially to a larger sum. Early invest also to gives you more time to make up for potential losses. A survey by Dinero Neo bank concluded that about 64% of young Indian investors are hesitant to invest in financial instruments owning to a lack of concrete information, unfamiliarity with difficult financial terms and over load of information.
Shop wisely and not with a competitive mindset. When you start making money, you tend to feel liberated to spend it and, therefore, you spend it quickly. To avoid this, try not to shop outside of your budget. According to the bestseller Psychology of Money, “Spending money to show people how much money you have is the fastest way to have less money.
The big steps in your financial path are the life-changing investments you make. Estate planning is about ensuring that your family and loved ones are cared for in your absence and that your assets and liabilities are handled and distributed amongst them according to your wishes. Without a comprehensive estate plan, the settlement of your affairs may be subject to a legal process, which could have unfavorable repercussions and create financial uncertainty and stress for your loved ones.
Most young folks assume that purchasing insurance to cover any harm or losses is the same as worrying about something that has not happened yet and is pointless. Truly, worry is not a solution, but being prepared is. This mindset is one of the key reasons why India's overall protection gap remains large and the Indian population remains to be underinsured. Hence, to build your resilience against financial uncertainties and unexpected expenses, you must consider buying insurance to secure your future.
Nevertheless, in personal finance, it is critical to plan for what is usually referred to as your "second innings. "You may stop working someday, but your expenses will continue to exist. According to the Insurance Indian Retirement Index Study (IRIS) conducted by Max Life Insurance, approximately 59% of Indians are concerned about running out of funds before retirement. So, you must plan for it if you want to enjoy your life after retirement without compromising on your quality of life or standard of living.
Managing your finances should not be considered a burden. Rather it should be viewed as a responsibility you should fulfil towards yourself and your family. Every individual is a novice before ultimately figuring out how to manage their finances. As a result, it is always a good idea to seek guidance and advice to improve your financial literacy and manage your funds better.