10 best ways of managing Personal Finance

by Hemant Beniwal on April 5, 2011

What is common between January 1st and April 1st?  Very Simple! It’s a starting of New Year either Calendar Year or Financial Year.  So what we all do in the starting of New Year. We Take Resolutions. Is it not..

better ways of managing personal finance 249x300 10 best ways of managing Personal FinanceResolution is typically to improve ourselves, promise to leave either bad habits or promise to start a Good one. So you all agree with this or not? But we all take resolutions on January 1st; we really do not take resolutions on April 1st.  Should we not really think to make New Financial Year a better year than the last year? Yes…. A new financial year waits for all of us and now the challenge is make this year better than the last one in terms of Financial Health.

Confused? You must be thinking can finance be healthy? Or let us put it this way that is there something “unhealthy finances”. Yes! People have Unhealthy Financial Habits and there is plenty of it.  But before we explain, can we ask something:

  • Did you miss any payment deadlines of your say electricity, mobile or a credit card and pay extra charges?
  • Did you deposit cash in another bank account as you had given a cheque of another bank account by mistake?
  • Did you miss the tax proof submission date of your organization and then when you missed you thought “you are an honest Indian, as you are paying the tax?”
  • Did you purchase the LCD from your salary and told wife to manage household from her petty savings?

The questions can be as many but all these refer to what we call being “Financially Unhealthy”. So, here we are going to suggest you the 10 best ways to manage your personal finance this year:

Analyze your financial relationships: Why do you have multiple financial relationships for similar products?  Close the bank accounts that you do not need. Transfer the stocks in one Demat and close the non- required ones. Discard the multiple credit cards to make life easier.

Use the Envelope system: Set up an “envelope system” to help you track where your money goes. Label each envelope with a specific spending category such as housing, food, transportation, clothing, entertainment, personal care, etc. At the beginning of each month, put the money have budgeted into the appropriate envelopes. When payments are due, withdraw from the envelope.

Buy the appropriate life insurance: Peace of mind is the first thing in Financial Life. Buy an appropriate insurance. Take the help of a Financial Planner to calculate your retirement.  Also if you have an investment linked insurance, find out whether would it be better to exit from it, make it paid up or surrender it.

Buy a Health Insurance : This would save you and your near ones from the Hospital blues. We suggest that along with your wife and kid, buy this for you again parents also and save your income-tax as well. We think this is one of the best ways to tell parents that we care.

Start saving and make sure your savings are equal to investments: If you are in twenties open a Systematic Investment Plan (SIP) with a mutual fund and open a PPF account. If you are in thirties, Start a SIP for Retirement Planning. All these schemes have different features and tax benefits/ implications. Consult Financial Planner before investing. (Read: 10 investment mistakes to avoid)

Retire Expensive Debt: Debt is part of life, but you need to manage it. Always retire the expensive debt whenever you have spare money. Even don’t mind taking a loan with less interest to pay off the loan with higher interest.

Start using Technology: Get registered for E-Statements and E- payment. Use auto- debit systems either through bank account directly or through credit card. Let utility bills be paid online.

Keep record: This year keep all record in proper from. Scan all important documents for eg your insurance policies, tax certificates etc. File all your investments with income- tax benefits in a separate file and others in separate files.

Control Spending habits: This year promise that you won’t deviate from you Budget. No matter how much or how little you’re paid, you’ll never get ahead if you spend more than you earn. Often it’s easier to spend less than it is to earn more and little cost-cutting effort in a number of areas can result in big savings. It doesn’t always have to involve making big sacrifices.

Don’t shy from seeking help from expert: A Financial Planner can act as a personal (financial) fitness trainer. Don’t feel shy to ask questions about your financial needs and solving the financial agony.

In the end……let us pray that all our readers remain Financially Healthy and Prosper in this New Year.

Would you like to share your Financial Resolution??

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{ 14 comments… read them below or add one }

1 Mani

Hi Hemant,

Well said about the 10 best ways of managing the Personal Finance…. But about the 2nd point ‘Use the Envelope system’ I personally feel, practically its difficult to implement it in a long run, but again it’s totally depends on the persons determination…

Mani

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2 Hemant Beniwal

Yes Mani – it depends on the persons comfort & acceptance of related ideas.

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3 Ajay

Hemant – Here is a budget template I found and evaluating it.

Log in to docs.google.com
Search for “Best-Personal-Budget-Planner” under templates.

This allows you to have a monthly budget for the complete year or a quick budget for the month. Thought it could be useful to ppl who are visiting this section.

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4 Hemant Beniwal

Thanks Ajay for helping readers. :)

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5 Shinoj Jose

For personal finance management, I feel buxfer is very good. Even though there are a lot of similar sites, I feel this one is good because it supports indian currency and it’s quite simple. All you need to have is the willingness to use it (or any other type of account keeping system).

Shinoj

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6 Hemant Beniwal

Hi Shinoj,

Buxfer is good one but there are few others.(Indian origin)

You rightly said “All you need to have is the willingness to use it” :)

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7 Shinoj Jose

Yes. I’ve seen this Indian sites. But whatever I saw were having very poor user interface and irritating experience. That’s why I suggested Buxfer. Mint is very good, but they will not support outside US. If you know some good Indian personal finance sites can you suggest…

Shinoj

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8 Hemant Beniwal

Hi Shinoj,

Have you tried Perfios??

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9 Shinoj Jose

Usually I don’t link credit card/SB accounts to these sites because of security concerns. So I don’t bother about automatic updates. Even if you read about the reviews about these sites, the main concern is that the automatic update is not working correctly. I do only manual entries. It will not take more than two minutes daily. Most sites will not provide facility for manual entry. And its encouraging as you can see graphs and charts smiling at you. ;)

Yes, I had seen Perfios. But since Buxfer was more than enough for my requirements I never switched. Currently I am using it for more than 4 years. I dint see any need for changing from Buxfer.

Those who don’t have access to internet regularly can try MS Excel. There are lot of good templates available over the net. Or we can create our own.

Any ways I believe that some sought of book keeping is necessary for all, as it is the basics of personal finance.

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10 Hemant Beniwal

Thanks Shinoj

I will try to share some details on one of these software very soon.

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11 ANIL KUMAR KAPILA

Hi Hemant
All the points are very good.Some can be implemented easily and others are difficult.

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12 vijay

Thanks.Very useful tips for personal finance.

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13 Hemant Beniwal

Thanks Vijay.

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14 Rajeev

Hi Hemant,

Love the tips. I have used most of your money management tips. I have used Excel, back of the envelope planning, Intuit and mint for tracking and planing. The problem with not using a good planning tool was that it took me quite a bit of time every time i had to do some analysis/financial planning. It worked for a while but with demanding job and 2 kids found that it became more and more difficult to keep up with it and more importantly spend enough time to do a good job of reviewing what I had and plan accordingly.

Since there were any good planning tools available directly to the consumers, with my ‘money management’ needs in mind, I started developing a PFM product that will help me stay on top of my finances (without much bookkeeping) and help me with decisions making. We ended up creating a simulation based financial planning product that lets the users track their money/goals, check their overall financial health and forecast their future with the click of a button. One can do alot more with planning.

We are about to introduce myTafi soon. I would love to hear your and your readers’ feedback/suggestions on the product.

cheers
Rajeev

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