Mentioned-below are the basics of personal finance:
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SETTING SMART FINANCIAL OBJECTIVES
Everyone should set clear goals for themselves to live a healthy and prosperous life. In 1963, a 29-year-old professor of accounting at an American university questioned how many of his students had written down their life goals. Surprisingly, just nine students out of 300 had written down their life goals on a sheet of paper. After that, it was 30 years later. i.e., in 1993, all of the students went to the same college and saw the same professor, who is now 59 years old. He calculated each person’s net worth. Only nine persons were found to have net worths greater than the combined net worth of 291 people. Interestingly, the nine people were the same ones who had written their goals 30 years earlier. As a result, it’s vital to set clear financial goals for yourself. When defining financial objectives, there are three crucial factors to consider. They are:
SMART IT: Smart is an acronym for Specific Measurable, Achievable, Relevant Time. One must be certain of what he desires, how much he needs, whether it is realistic and meaningful, and when he desires it.
TIME IT: Your goals could be short-, medium-, or long-term. Immediate goals are tasks that must be completed within the next 30 days—take the purchase of an Android phone as an example. The work that takes a year to achieve is a short-term goal. The medium-term objectives are the ones that will take up to three years or more to complete. Long-term goals require more than three years to accomplish. A high school student may have the opportunity to study abroad.
WRITE IT DOWN: It is usually preferable to record your goals on a diary sheet so that they remain fresh in your mind and you can attain them.
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POWER OF COMPOUNDING
Compound interest is sometimes called the “eighth wonder of the universe.” Simple interest pays interest only on the principal, whereas compound interest pays interest on both the principal and the interest. For example, a thousand rupee principal invested for ten years at a 10% rate will earn thousand rupees in simple interest and thousand five hundred and ninety-three rupees in compound interest. Compound interest is always better when it comes to investing because it helps the fund to grow at a faster rate.
Money increases in value as time passes.
Saving a smaller amount of money over time will provide a greater return.
The earlier you invest, the better.
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MAINTAINING RECORDS (ACTUALS AND BUDGETS)
Everyone must keep accurate financial records to determine their spending level and savings from their earnings. There are various ways to make money. Salary from a job, profit from a business, and interest in savings are all possibilities for grownups. Tuition students’ sources of income may include pocket money from parents, presents from relatives, stipends from internships, etc. In contrast, their expenses include college fees, mess bills, fuel charges, and mobile phone recharge bills. As a result, it’s always a good idea to keep track of your financial transactions to make the most of your money. Make a budget at the beginning of each month and set aside at least 20% of your money. The judicious use of money can be aided by proper preparation and execution. Maintain financial records in between these steps.
