Financial planning for young adults unfortunately isn’t part of high school curriculum. This leaves many young people clueless about how to manage their money once they start earning. Financial planning provides a framework for a systematic way of managing money and avoiding shocks and surprises. Here are 6 rules and tips you can follow to plan your finances well.
Create a financial calendar
To correctly remember to pay your quarterly taxes, rent, bills or periodically take a credit report, bank statement, etc. you can set reminders. You can schedule these important money related to-dos the same way you would schedule an annual doctor’s visit or car servicing.
Manage your money
You don’t need a degree in finance to manage your money as it can be done in a few simple steps. Systematic saving is the first step towards money management. Saving on a regular basis can make you rich and help achieve your financial goals in a timely manner. Ensure that you save a minimum of 10 percent of your income every month to start with. You can use this amount to invest and grow your money further.
Second step towards managing money is to track all payments. Start by chalking out the compulsory expenses such as EMIs, rent, fee, electricity bills, insurance premiums, etc. Allocate funds for them separately and keep your savings intact.
Third step is to allocate a budget for other expenses. Make sure you keep enough to manage any unforeseeable purchase and at the same time, do not splurge or spend unnecessarily.
Golden rules for financial planning are to never let your expenses exceed your income, and always keep your eye on where your money goes. This can be done only by creating a personal spending plan to track the money you bring in and the money you spend.
Go digital and leverage online budgeting tools
Budgeting and financial planning can be done easily with free online tools such as fintoo, moneyhelper, etc. With these you can track your expenses, create savings goals, and build budgets.
Also, making use of digital platforms to go shopping and making payments is a great way to track your expenditure. These can also help you build up a habit of saving on small transactions and prevent impulse shopping.
Get a grip on taxes
It is necessary to have tax efficiency to keep more cash in hand. Various tax exemptions, deductions, and benefits are available under Sections 80C through to 80U Income Tax Act that can help you reduce tax liability at the end of the financial year.
Schemes like Equity Linked Savings Scheme (ELSS), National Pension Scheme, Public Provident Fund, etc, along with life insurance policies, health insurance policies, payment of home loans, and so on can get you a tax deduction. Through most of these schemes you can avail a deduction of up to Rs 1.5 lakh.
Also, if you opt for the new income tax regime you can choose to take no exemptions, pay more taxes but keep more cash in hand as you won’t have to invest your money in different tax saving schemes.
Buying adequate life insurance through a term insurance plan is a great way of ensuring a secure future for the people who financially depend on you. Also, health coverage for all family members is a must as it can save you from burning into your savings in a time of need.
Planning for retirement
Early planning for retirement is important to financially secure your future. In your late years, you are more vulnerable to ailments that require extensive medical care. To cover for the rising healthcare costs, early planning is crucial. If you start retirement planning early you would accumulate more funds than starting late even with the same amount of regular savings. If you start early the “magic of compounding” enables, you to even remove early and lead a hassle-free life.
You can easily calculate your retirement contribution depending on your retirement goals such as age, corpus, and retirement plans if any. You can also use online retirement calculators and choose the best retirement schemes as per your needs.
(Edited by: Sudarsanan Mani)