5 Key Principles of Personal Finance

Personal finance refers to the technique of managing your investments and savings through several financial activities such as banking, mortgages, budgeting, insurance, taxes, and retirement planning. Simply put, it refers to the art of realising your financial goals, whether it's saving for retirement or your child’s education and marriage. It is essential to be in a position to distinguish between good and bad financial practices and make sensible decisions so that you don't end up incurring unwanted expenses. In this post, we discuss five critical personal finance principles that can help you achieve your financial goals and make the most of your money and savings. Read on!

1. Build an Emergency Fund

Cash is an instrument for solving all the financial problems that life throws at you. It is vital to build an emergency fund or open a savings account at a local bank where you can deposit some money every month. You can start building your fund by setting up an automatic monthly transfer from your salary account to the savings account so that you can save every month without fail. Always remember that you should only use the money in the event of an emergency.

2. Eliminate High-Interest Debt

Once you have sufficient emergency funds, the next point of focus is to pay off debts that have high interest rates. Set up a simple, automatic debt repayment plan by organizing your loans as per the rates of interest and try to make double or more payments every month. Once you have paid off all the debts, you'll be able to build a good credit history. Doing so will give personal loan companies a positive impression of you allowing you easy access to affordable loans.

3. Save for Retirement

After you have paid off your debts, you can now start saving for your retirement by opening a pension fund (PF) account at work and contributing to it. Suppose you don’t have a PF in your company. In that case, you can open a savings account or a Recurring Deposit (RD) account where you have to contribute a small part of your monthly salary. You can also open up a term policy where you have to deposit some money every year to get a lump sum with interest when the policy matures. Generally, it is advisable to start a term policy when you are young so that you can save for 25-35 years and get ample savings for life after retirement. It is also advisable to not touch your retirement fund unless it’s essential.

4. Invest in Life Insurance Policies

Life insurance policies are highly recommended, especially if you have dependents. Investing in life insurance policies can help you save significantly for your family and children if something unfortunate happens to you (since they rely on your income). The maturity amount depends on the yearly installments you are paying, and the number of years the policy has been alive. It is better to have a life insurance policy at an early age so that you have chances to keep it alive for more years and save explicitly for your family.

5. Invest in Stocks

Stocks are known to offer a good return over a long term period. They are better than the interest banks pay on your savings and the return you get on your FDs and RDs if kept untouched for years. Before investing in the stock market, it is advisable to study the market thoroughly and concentrate on shares that tend to give profits for many years. Do not invest in several commodities and limit yourself only to a few that have higher chances of growth in future. While investing in stocks, it is important to be patient, especially when the rates get volatile and experience jumps and falls. You can also consult experts to learn your way around the stock market.

Wrap Up

All these personal finance principles are valuable tools for achieving the desired financial success. It is, however, essential to consider the big picture and stick to the habits that help you make the right financial choices and manage your financial health efficiently. Never go for a high-interest loan that forces you to pay significantly more than what you borrowed. Go for personal loan companies that offer lower interest rates and give you sufficient time to repay the loan amount without making the entire process overwhelming and complicated. To get a personal loan with attractive interest rates, look no further than KreditBee. We provide an affordable online loan application platform that promotes quick and easy loan disbursal processes. Just download our app, register, submit your application with us, and we’ll take it from there.