5 Important Personal Finance Rules To Live By

It is often said that money does not buy happiness – but you must admit that having a lot of money makes life much more comfortable. However, creating wealth is not a matter of chance or luck. Any financially successful person will tell you that there is no magic formula to creating wealth. Rather, you require a definite roadmap listing your financial goals matched with the most appropriate tools that will guarantee success.

From approaching personal loan companies for short term loans to building a retirement corpus from a young age, we list the 5 most important personal finance rules to adopt today:

#1 Save for the future.

The #1 personal finance rule to live by, is to inculcate the savings habit as soon as you start earning money. Saving a portion of your income every single month in a separate account that you never withdraw from builds a large savings fund over the long run. If you save just Rs 5,000 per month, you end up with savings of Rs 60,000 per year. Over time, you can convert a portion or all of your savings into a bank FD or invest in a suitable option for higher earnings.

#2 Eliminate debt as soon as possible.

A good money habit to have is to never borrow money unless no other avenue for raising money has been explored. And when you do take a loan, you must aim to become debt free as soon as possible. Having a loan for long, cuts into your monthly income since you pay EMIs to repay the loan. If you must borrow money, you should take a personal loan that has a small tenure and which is repaid relatively quickly. Please approach leading personal loan companies or download a leading loan app for the loan.

#3 Make the right investments as per your goals.

Simply saving money will not help you create wealth. At best, savings create a cushion for immediate emergencies. If you are looking to create wealth, you must invest your savings fund in a mix of equity and debt instruments – these use the power of compounding and lower risk when you stay invested for a longer time. Try a mix of instruments like liquid funds, ELSS, tax saving 5-year bank fixed deposit, ULIP, PPF account and mid-cap and small-cap funds. Your investments advisor can create the right investments portfolio based on your risk appetite, investment goals and sources of income.

#4 Start planning your retirement while you’re still young.

Retirement might seem like it is several decades away when you’re still in your 20s. But the years slip by rapidly and retirement looms large on the horizon. You cannot scramble to create a retirement nest egg when you are a few years away from retirement, nor can you depend solely on your pension to tide you over in your retirement years. The time to plan for a comfortable and stress-free retirement is today. Start by looking for the right retirement planning options, from annuity plans to long term bank fixed deposits. You can even start a retirement ULIP and renew it once or twice after the 10-year term is up (to utilise the power of compounding for a larger corpus). Look for retirement pension plans that offer a small but steady income after you retire – the plan pays monthly bills after retirement.

#5 Buy life and health insurance.

Unless you have over Rs 1 crore and more saved up in the form of savings and investments, you probably don’t need to buy life and health insurance. But even if you are already fabulously wealthy, you should still invest in suitable life and health insurance plans. Insurance takes the pressure off your income in the event of future health and job loss concerns. The right life and health plans insulate your income against future uncertainty while protecting your loved ones in your absence. Your insurance advisor can recommend the best plans for your income and future financial goals.

Conclusion

There is no need to reinvent the wheel when trying to create wealth – just use tried and tested financial principles to do the job for you.

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