Personal Finance Tips: Money Management Do’s and Don’ts for Keeping Goals on Track and Crisis at bay

Financial planning or financial management is a step-by-step strategy that helps individuals/entities achieve their goals and effectively mitigate crises. It helps keep track of income, expenses, savings and investments and thus keeps an overview of all these things to keep your finances running smoothly.

Financial planning is a holistic approach to managing the present and future of your finances. It acts as a guide and thereby helps to achieve goals and stay prepared for financial difficulties. Whether it’s your first home, your kids’ upbringing, or post-retirement, a disciplined investing routine can help you achieve all of this.

“When you begin your investment process, you need to start with risk management. Risk management involves three aspects: one is life insurance, second is health insurance, and third is creating an emergency fund,” said Hemant Rustagi, CEO of Wiseinvest, who represents the Do’s.

Rustagi said the whole purpose of investing is to fulfill the dreams one has for himself or his family.

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Do’s of financial management

1. Life insurance: Life is uncertain and while an individual makes plans for the welfare of his family, and in case something happens to that person, those aspirations and dreams cannot be achieved. At this point, life insurance comes into play and helps by providing financial support, Rustagi said. Life insurance is a risk management tool.

2. Health Insurance: “Our lifestyle has become so expensive these days that if someone spends five days in a hospital, their budget for the next one or two years is messed up. So it is important to have health insurance to cover your medical costs said Rustagi.

3. Emergency fund: Experts say that if someone doesn’t have an emergency fund, they can occasionally continue to disrupt their mutual fund.

Rustagi says it’s just as important to have the right product. “For life insurance, take a term plan, and for health insurance, if you have a small family, take a family floater and invest in a liquid fund to create an emergency fund and keep it in a pure liquid form,” he said. Rustagi.

He said that one should always follow a goal-based investment strategy, be it short, medium or long term.

4. Asset Allocation: “The most important aspect of money management is the allocation of assets. One should keep in mind what purpose they should invest in stocks, such as for retirement planning and education for children, that money can be put into equity. If it is a short term goal , such as vacation or tuition, that money should go into safer instruments. For the medium term, it can be invested in equity and debt,” Rustagi said.

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5. Save First, Spend Later: The financial advisor said one should avoid spending first. “You have to save first and spend later. People have to be committed to their investment goals and take money out of their earnings first,” he said.

6. Start investing early: According to the expert, a person can take a risk when he is young. “When you’re young, you can afford to make mistakes as time is on your side. So you can invest in stocks and take risks because it helps beat inflation in the long run. A big advantage of stock investing is the power of compounds,” Rustagi said.

Don’ts of Financial Planning

1. Never equate saving with investing: Rustagi says that you should never equate saving at the bank with investing. “Many people think that saving and investing are the same thing, but they are not. While the purpose of both investing and saving is to secure the future and maintain discipline, both are completely different. In the process of wealth creation, saving is the first step, but it is investing that will help create wealth,” he said.

2. Don’t rely on traditional options: Investors should not rely solely on traditional investment options such as fixed deposits. “We are dealing with two risks: capital risk and inflation risk. We all focus on risk to capital because we don’t want to lose part of our investment. And in this process we ignore the much higher inflation risk because in the long run, if one stays investing in traditional options, the returns will in most cases be low and taxable, so given inflation and taxes, there will be no positive returns,” said Rustagi.

3. Avoid Wallet Unrest: Rustagi advises investors not to make frequent changes to their portfolios. “While monitoring is important, it shouldn’t be done just to make changes to the portfolio. If you keep changing your asset allocation, you’re missing out on a lot of opportunities in the market,” he said.

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