Personal Finance: Top 10 Things to Know

They also neglect to do so. This can potentially lead to disastrous consequences in the future. Therefore, it is very important to manage personal finances at a very young age. Here we try ten important aspects of personal finance that are very important for everyone.

1#  Personal treasure:  Spend less than you earn.

A wise man said, "If you buy things you don't need, you'll soon have to sell the things you do need" (~Warren Bane). Spending is important, but one shouldn't go overboard. One needs to. Saving money at every stage. Delays here can have disastrous consequences. Basics of Personal Finance says this is a basic rule. Step 1 of personal finance management starts with savings.

2# Personal finance: A bad customer. Manage your credit cards and debts.

This is another aspect of getting the basics of personal finance right. Credit cards are great if you use them well and to your advantage. If you pay your credit card bills on time you will definitely be a bad customer for the company, never delay and use the credit offered to you. And yes, you can earn cashback and reward points too.

Managing your debts is also very important, one needs to know whether you have borrowed to potentially appreciate assets (e.g. property) or depreciate assets (e.g. car). Depreciation of assets should be limited and the amount of liability taken to value assets should be such that it does not create undue strain.

3#  Personal finance: Invest in tax saving methods.

It's a great idea to add 40 in the US. Public Provident Fund (PPF) in India is in the best position because:

• The amount invested is tax-exempt.

• tax-exempt fixed and tax free.

• This retirement planning creates a cushion for the future.

4#  Personal finance:  Better to be safe than sorry, buy insurance!

Protection is ensuring personal financial planning. Buying insurance is very important, initially buy life cover in the form of term insurance. The sooner you buy, the cheaper it will be. Also, make sure that you (and family) are covered for medical care through adequate insurance as well. Medical expenses are increasing yearly and good medical care is very expensive. Not being covered or down here can put a real hole in your savings.

5#  Personal finance: Invest in what you understand or can understand.

Don't buy products you don't understand. If you cannot understand structured products or derivatives, you should not invest or trade in them. Invest in simple products and strategies that you can understand. Whether it's stocks or mutual funds, understand what you're getting. What is the future of stock products, what is the quality of management etc.? If you can't analyze stocks, stick to mutual funds. Professional managers called fund managers who are well qualified and manage money as their daily job will manage funds better. Choose your products carefully. Getting the right products in your portfolio results in better returns.

6#  Personal finance: Don't follow the herd, they are almost always wrong.

Take a look at the data below for the BSE Sensex (India's equity benchmark) from 2000 to 2016 against mutual fund flows (a proxy for investors entering or exiting the market). The herd always exits when it looks like the market is making a bottom and invests more and more when the market is making a top! So don't buy at all when everyone else seems to be buying and don't sell when everyone else is selling! This is never a good idea.

7#  Personal finance: Stay invested for the long haul, really long.

It makes sense to invest in good companies or stocks for a really long time. If the management of the company is of good quality, they can earn you big money. Take the example of Infosys Share below (a software/IT company in India). At its IPO in 1993, 100 shares were bought for just Rs 9,500. After 24 years this amount is worth around USD 1 million ~ INR 5 Crores (INR 5,00,00,000), an EXAGR of over 50% per annum!

8# Personal treasure: Don't put all your eggs in one basket, diversify!

One should not put all their eggs in one basket, what is important is to diversify across asset classes and even stocks. The investment under consideration is that different asset classes perform over different periods so it is important to build a portfolio of stocks, funds etc. This,, is illustrated below by the returns of 3 different asset classes for the calendar years 1997, 2008 and 2009. every year. Along with stocks, it is important not to choose just one player to run a story, but to choose more stocks or have multiple stories to run. Again with mutual funds, one does not need to stick to a single manager or single fund, it is better to spread oneself.

9# Personal finance : Buy and hold is a common saying, but re-balancing, it's important!

While building a portfolio, it is important to buy and hold. No one makes all of their decisions right. Even Warren Buffet has made investment mistakes, such as Solomon realizing Solomon's, Tesco, US Airways, and Dextran Shoes Company where he has made losses or barely cashed out. The important thing is to get more rights than wrongs! It is important to realize a mistake,, admit it and move on to better investments, even if it means minimizing losses. Remember that losses eat into your positive profits.

10# Personal finance: Plan for the future, make a will.

Making a will is a very important task. Making a basic will is very easy and takes no time. Today with the advent of the internet it has become very easy to create something called "E-will". This can be done in a very short time and can go a long way in ensuring asset succession. People who have a lot of wealth and want advanced services can do estate planning and take the required steps.

All of the above are some important steps and aspects that must be considered while managing personal finance sustenance must be considered. Some are fundamentals, while others are about planning, implementation and the future. Taking care of most or all of the above will result in better financial planning and a more secure future!