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Money Management Tips
Get started with financial planning with our
guide on money management
Money Management Tips
Get started with financial planning with our guide on
money management
Everyone needs money and wants to spend it on their own terms, even if they cannot earn it the way they want. However, once you have your salary in hand, a number of ideas can pop into your mind and make you want to spend your money on gifts and other luxuries after you take care of your essential expenses.
This is when money management becomes necessary. Your income can do more than pay for essential expenses and entertainment. And so, with a financial plan in place, you can start saving and investing your money so that your financial management can help you create and build wealth over the years. Here is a clear outline of some money management tips and how you can go about it.
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How to Create a Financial Plan?
Creating a financial plan can seem like a lot of work, but once you get started, you understand how to keep your savings and investments in sync with the plan and manage your wealth.
Make A Note of Your Financial Goals
Be it a diary or a digital notepad, create a list of all your financial goals over the years. This is what you want to achieve during the given timelines with the financial resources you will build. Then, bifurcate all the objectives into short-term, mid-term and long-term goals.
Also, list out the following questions, which will help you get a clear sense of how you want to achieve these goals. They are:
- What are my short-term goals between 6 months to 5 years?
- What are my mid-term goals between 5 to 10 years?
- What are my long-term goals for over 10 years?
Once you are able to know these goals, it becomes easier for you to save and invest your wealth which makes financial planning more target oriented.
Create A Workable Budget
When you start creating a budget for money management, it needs to be practical so that you can follow through with it. Here is what you need to allocate your financial resources for:
- Household expenses: rent, maintenance, utility bills.
- Healthcare expenses: dentist’s bills, check-ups, medications, first-aid supplies.
- Transportation costs: maintenance of a personal vehicle, petrol/diesel, other consumables.
- Savings for life insurance for the future protection of your family.
- Food expenses such as dining out and groceries.
- Entertainment expenses like interests, hobbies, vacations and so on.
You can also choose to list activities like dining out and entertainment expenses as a separate tab because these do not essentially happen on a daily basis. Instead, it is mainly household costs and other maintenance and transport costs that take up a chunk of the budget.
The total amount you get after adding all these expenses should be subtracted from the income you receive from your salary or any other monthly source of income. Then, the extra amount that remains should be saved or invested for your financial goals.
Include Debt and Taxes
Chalk out a clear plan for your debt and taxes, as these can come in the way of your savings and investments if not carefully planned. Ensure that you are able to clear your debt on a priority basis so that it does not accumulate and affect your future financial plans. Tax planning should also be on your list so that you can understand how to save money through tax deductions on various savings and investments.
Set Up an Emergency Fund
Even though you may have allocated money for savings or investments, a liquid emergency fund is purely for an emergency such as a medical contingency or a loss of income. At such times, it is best not to disrupt your savings or investments that are growing over the months. Instead, this is when you should use the accessible emergency fund, which should at least cover 6 months to 1 year of essential expenses and household needs.
Make Your Retirement Plan
Even though your retirement could be years away from today, it is important that you start planning for it soon. A lot of expenses that are currently in your life today will also continue through retirement; however, your salary will be absent. This facilitates the need for a regular income that you can use on a monthly or yearly basis. Consider inflation and all other necessary factors and ensure that this post-retirement income should at least be equal to your monthly salary, if not higher.
When you create a financial plan on the basis of these steps, it becomes easier for you to fulfil your goals and also protect your family in case of an unfortunate event.
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Ways to Manage Money
Here are some important and necessary money management tips that you should be aware of if you want to manage your money better:
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Systemise your Financial Records
Start off by making a list of all your financial goals and objectives. Maintaining a financial record for the coming times becomes more convenient and makes it easier for you to manage your money. Always keep the original documents of each financial document, such as your bank statements, investment account details, estate planner, insurance policy, tax exemption statement and other such papers, safe and secure. Keeping an eye on these will help streamline your goals from time to time.
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Calculate your Net Worth
It is not only enough to keep all your financial documents safe but also be aware of how much your net worth is. To check if your net worth is positive, it is essential that your assets, such as your house and investments and savings, are well above the liabilities like your loans, debts, and mortgage. In case your loans and debts are greater than your assets, then your net worth is negative, and you may need to work towards reducing your debt.
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Make an Expenditure Plan
Whether you have income from a single source, i.e., your salary or multiple sources, such as business, bonuses, etc., it is important to have an expenditure plan. Such a plan will include your income, investments, savings, and expenses. Always work towards keeping your income higher or equal to your investments. That way, if you need to increase your investments later on and diversify them, you can do so easily. In addition, an expenditure plan is important as it helps you prepare for future financial emergencies.
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Save First, Spend Later
Whenever you receive your salary or income for the month, first keep aside a designated amount for savings and then spend the rest on your household expenses, utility bills, life insurance premiums, EMIs and so on. By doing this, you are safeguarding your future so that in case of emergencies, you will not have to struggle to gather financial resources. The amount you save will depend on your income and how much you aim to save over a specific time period.
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![Money Bag Icon]( "Term plan with a return of premium can offer you a 105% return on the total premiums paid on survival")
Set Financial Goals
When you spend money without any plans in place, it is likely that your spending may exceed your earnings. Moreover, this will leave you without a financial support system in case of an emergency. Hence, before you spend, set your financial goals such as the purchase of a new car, retirement goals, your children’s education, your future business endeavours and so on. This can help you achieve the goals as per their given timelines while keeping you motivated and saving you from overspending.
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![Money Bag Image]( "Pay your term plan premiums by choosing from flexible payment options - Features of a Tata AIA Term Insurance Policy")
Start Saving Early
If you are new to the workforce, you may not want to experiment with many different savings plans or put a large portion of your salary into savings. However, it is crucial to start at least a small savings plan right away at a younger age and slowly work towards increasing this amount each year and later, every 6 months, instead of waiting until you earn more. When it comes to savings, a longer tenure means a greater future financial corpus.
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![Money wallet icon image]( "High Sum Assured for Low Premiums - Features of a Tata AIA Term Insurance Policy")
Start Investing Early
Much like savings, investments also need time to grow so that you can earn better returns and also benefit from compound interest. While you may be apprehensive about investing at a young age with less experience, investment plans like Unit-Linked Insurance Plans are quite flexible and can cater to the needs of different investors. As a young professional, select a long-term investment that suits your goals and budget and start investing a small sum of money regularly, which you can gradually increase over the years.
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![Term insurance policy offer different plan options that you can choose from as per your needs]( "Term insurance policy offer different plan options that you can choose from as per your needs")
Ensure Protection Against Emergencies
Apart from your savings and investments, it is always advisable to have an emergency fund in the making, one that will help you keep your family secure in trying times. A life insurance policy can be one such plan that will not only help your family secure in your absence but will also make your investment in it worthwhile, as you are assured of the support they will receive. Moreover, insurance plans are flexible, and you can compare and choose a suitable one.
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Importance of Financial Planning for Women
Though financial planning is important for everyone, women are making financial planning an important part of their life as compared to 10-15 years ago. All one needs is some guidance and creating a financial plan becomes a smooth process. However, there are still many women who are unable to start with financial planning, either due to a lack of knowledge or because someone else does it on their behalf. Hence, let us look into the importance of financial planning for women.
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Take a Professional BreakThere may be many reasons why a woman may choose to take a break from her work. Be it her health or some other commitment; a career break may be necessary; however, it also means that she cannot enjoy a steady income like her salary. To ensure that this time period does not present financial distress, plan ahead and ensure that you have enough funds for your needs.
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Marriage and ParenthoodFor many women, marriage and parenthood become two major events during their lifetime, which means they also become financial milestones. Given how financially independent women are today, their financial contribution to their wedding and their children’s care plays an important role. This means there should be a financial plan in place to handle these commitments.
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Prepare for ContingenciesEmergencies can be difficult to tackle, especially if you do not have an emergency fund or a financial support system. Therefore, be sure to include savings or investments for an emergency fund in your financial plan that can help you out in case of a medical event or an accident during which you may not be able to earn and support yourself and your family.
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Prepare for Higher EducationUpgrading your skills is essential at any point in your career. Whether you are looking for a new job or switching industries, you may want to undertake some educational courses or skills training for better prospects. And for this, it is important that you have some financial resources at hand.
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Gain Financial FreedomThe main reason you should handle financial planning by yourself is to gain control over your finances. By doing this, you achieve financial independence and can take calls on how much you would like to save, invest, or spend.
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Apart from all the reasons given above, women should be financially independent because it not only helps them provide a good life for themselves and their families but also gives them a sense of accomplishment and boosts their self-esteem.
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Frequently Asked Questions
What are some simple ways to manage money?
Some of the simplest ways to manage money are to keep track of your expenses, start saving money in savings plans and other avenues and ensure that you are regularly building an emergency fund. For example, to keep a check on your expenses, you can write down each and every expenditure, and as for savings, you can look into savings insurance plans that not only allow you to save your money systematically but also offer your family financial security.
What are the mistakes to avoid in money management?
Here are two common mistakes that you should avoid in money management – ensure that your expenses never exceed your income and do not make any investments without first researching them.
Do I need a financial advisor to manage my finances?
Financial management at a personal level is not difficult, and you will not need an advisor to take care of your daily expenses or guide you on your income and expense ratio. However, when it comes to savings and investments, especially the latter, you should seek help from a financial advisor before making an investment.
Is life insurance part of money management?
Yes, many people choose to have a life insurance policy, be it simple term insurance, a savings policy, or a Unit-Linked Insurance Plan, as part of their financial plans. This ensures that you are regularly investing some part of your income in protecting your family’s financial future.
Can a savings plan be part of my financial planning?
Of course! A savings plan can be a good option for financial planning as you can save a designated sum of money in a regular and systematic manner over the policy term. Moreover, the policy will also protect your family with a life cover that will offer financial assistance in case of your untimely demise.
Are savings and investing necessary for managing finances?
Most certainly! Savings and investments ensure that your money is growing by garnering interest during the tenure. By setting aside money for your savings and investments, you can not only build a financial corpus for different goals, your future and for emergencies but also plan your expenses better. When you receive your salary or income, make it a point to first save or invest some portion of the money before you start spending on your daily essentials.
What are some tips to keep in mind for managing money?
Here are some basic tips to remember for money management:
- Plan your financial goals
- Make a practical budget
- Save for your retirement
- Save for emergency situations
- Make wise investment choices
- Avoid loans unless necessary
- Review your finances periodically
Will excessive debts be bad for money management?
Yes, if you have too much debt and are dealing with several loan repayments, there is a narrower scope of saving or investing any money. Over a period of time, not only will this affect your credit score, but it will also take a toll on your essential expenditure, which can lead you to take more loans. One way of avoiding such a situation is to create a savings fund in advance for your goals so that you do not have to take a loan unless it is absolutely necessary.
How can I plan a realistic budget?
A realistic budget is one in which you are aware of how much you should spend or save in comparison to your earnings. Make a note of your actual monthly expenses instead of a vague estimation so that you can save a fixed amount of money each month. If needed, split all your expenses into smaller tabs to get the exact idea of your expenditure. While setting a realistic budget, it is important that your expenses do not exceed your income.
Is it necessary to set financial goals at every life stage?
Absolutely! Since you and your family’s financial needs and goals will keep changing over the years, it is important that you set and reset your financial goals from time to time. Some of these goals will be specific to a particular timeline, such as the purchase of a new home, raising and educating your children or taking care of your aged parents. This is why financial goals can change as per your life stage.
Will money management help me plan my retirement?
Yes, you can manage your savings and investments well in advance and set aside a retirement fund at least 10-20 years prior to your retirement. By planning your retirement, you can ensure a steady flow of income for yourself and your family’s various needs during a time when you will not be supported by a monthly salary.
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Disclaimer
- The complete name of Tata AIA Fortune Guarantee Plus is Tata AIA Life Insurance Fortune Guarantee Plus - Non-Linked, Non-Participating, Individual Life Insurance Savings Plan (UIN: 110N158V06)
- *"Guaranteed Annual Income” shall be a fixed percentage of the Annualised Premium / Single Premium (excluding discount) payable in a year. Guaranteed Annual Income as per the chosen Income Frequency shall commence after maturity till the end of the Income Period, irrespective of survival of the life insured(s) during the Income Period.
- $Available under Regular Income with an Inbuilt Critical Illness Benefit option
- **Tax benefits of up to ₹46,800 u/s 80C is calculated at highest tax slab rate of 31.20% (including cess excluding surcharge) on life insurance premium paid of ₹1,50,000. Tax benefits under the policy are subject to conditions laid under Section 80C, 80D,10(10D), 115BAC and other applicable provisions of the Income Tax Act,1961. Good and Service tax and Cess if any will be charged extra as per prevailing rates. The Tax-Free income is subject to conditions specified under section 10(10D) and other applicable provisions of the Income Tax Act,1961. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above.
- ^Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere on this site. Please consult your own tax consultant to know the tax benefits available to you.
- ^^Medical Consultation is available under eligible policies of Tata AIA Life Insurance and these services are currently being provided by Practo. Medical Consultation feature is optional. It is the customer’s sole discretion to avail Medical Consultation and to follow the advice suggested by the service provider. All medical-related dealing will be directly with the service provider and not with Tata AIA Life Insurance. It is available only for Life Assured of active policies for select products/riders. This feature can be discontinued, or service provider may be changed at any time at Tata AIA Life Insurance’s discretion. This feature is provided by a third-party service provider and Tata AIA Life Insurance shall not be liable for any liability arising due to customer opting to avail this feature.
- +Return of Premium Benefit is The Total Premiums Paid (excluding loading for modal premiums and discount) by the policyholder will be payable at the end of the Income Period, irrespective of survival of the life insured(s) during the Income Period.
- The products are underwritten by Tata AIA Life Insurance Company Ltd. The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
- For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
- Insurance cover is available under the products.
- Please know the associated risks and the applicable charges, from your insurance agent or the Intermediary or policy document issued by the insurance company.
- Risk cover commences along with policy commencement for all lives, including minor lives.
- Buying a Life Insurance Policy is a long-term commitment. An early termination of the Policy usually involves high costs, and the Surrender Value payable may be less than the all the Premiums Paid.
- In case of non-standard lives and on submission of non-standard age proof, extra premiums will be charged as per our underwriting guidelines.
- All Premiums and interest payable under the policy are exclusive of the taxes, rider premiums, underwriting extra premiums, loading for modal premiums, if any which will be entirely borne/ paid by the Policyholder, in addition to the payment of such Premium or interest. Tata AIA Life shall have the right to claim, deduct, adjust, and recover the amount of any applicable tax or imposition, levied by any statutory or administrative body, from the benefits payable under the Policy.
- L&C/Advt/2022/Nov/2798
