Personal finance is a powerful term that refers to individual practices in managing money and planning for the future. We all earn money and make many financial decisions day in and day out. Some people are enthusiastic about investing and growing wealth, whereas others simply spend out what they earn. When it comes to managing personal finances, you are guided by some rules of thumb like ‘do not buy a house which may cost you more than three years of your income.’ Some people believe that ‘one should save 10% of their income towards investment/retirement.’
While many of these so-called quotes are helpful in many people now, it is important to consider your personal situation and do personal financial planning accordingly. This is an expert job, and you have to gain that knowledge and skills to accomplish it well. If you want professional assistance in your personal finance management and investments, help is always available out there. In this article, we will discuss some of the top finance rules which you may follow to improve your overall financial health.
Financial health rules by Kavan Choksi
1. Always do the mat
Money flow in, and money goes out so naturally. For many of the normal people out there, it is not as deep when it comes to their understanding of personal finances. Kavan Choksi says that rather than simply ignoring your finances, you may have to do a bit of number crunching, which will help you thoroughly evaluate your financial health, and taking proper measures to tackle it will improve your overall financial situation health too.
2. Manage lifestyle in line with Inflation
Most individuals tend to spend more money as they get more to spend. As people start to earn more through advancement in their career, the corresponding spending also increases. This is called lifestyle inflation. In the personal finance management approach, you may know what you need and should be mindful about your spending.
3. Recognize needs vs. wants
Unless you have an unlimited and unrelenting flow of money, you need to be mindful about distinguishing between your needs vs. wants. For example, shelter, health, transportation, and clothing are your basic needs, whereas your wants can sometimes be compromised for better management of personal finances for creating wealth and retirement funds.
4. Start saving early
It is never late to start with it when it comes to saving for retirement. The earlier you start retirement planning, the more wealth you can make through compound interests. The power of compounding is far more than what you can think, and this is the reason why Albert Einstein called compounding the eighth wonder of the world.
5. Have an emergency fund set aside
An emergency fund is a necessity to be utilized for emergency purposes, which can pop up at any time in life. An unexpected need like a hospitalization or vehicle repair can come up anytime, for which you can use this. However, hold your emergency funds until you identify the situation as an emergency. This is a fund that has to be included in your personal budget planning.
These personal finance rules explained by Kavan Choksi, if followed well, can change your life and make it more secure with financial independence and peaceful living.
