BY MUSKAN DAHIYA
The ones living paycheck to paycheck tend to become familiar with the concept of losing out their money at the end of every week, month or year. Being broke hits one hard. Being left with barely enough to survive can land even the most intelligent and successful people in a strenuous situation. It is an important point to be considered by the authorities of the world that having a basic knowledge of Managing Personal Finance is the need of the hour due to the latest developments when Currencies and Foreign Exchanges are becoming highly unstable. Despite of the greatest concerns, only four states (Virginia, Tennessee, Missouri, and Utah) of US require high school students to complete a stand-alone course in personal finances to graduate high school, developing countries like ours are way behind in terms of Financial Literacy.
Managing money and securities is as important as earning them. Every teen should enter adulthood with basic financial literacy. It is sad and alarming that only few teens understand terms like “interest rate”, “debit card”, “inflation” or “financial institution”. How many of us are actually saving for our long term goals? We all want to be independent, but why do we ignore that independence comes with responsibilities too?
Understanding the basics of finance is not as tough as it seems. Here are some personal finance Management tips to make sure that one gets to know the discipline associated with money management at an early age.
Save First Spend Later
Many of us automate our EMI payments or credit card payments just to ensure that we do not get late with it. We rarely consider automating our savings. Thus always pay yourself first by automatically routing a fixed amount from your Savings account, this will make sure that we save first and spend later.
Follow the 20-30-50 Rule
Initially, we can’t really expect ourselves to be altogether certain about the allotment of our money. Let’s try this rule of breaking up the income into 3 buckets:
Use 20% for financial goals such as saving and investing.
30% for wants such as shopping, entertainment, salon/spa etc.
50% for needs (necessities) like rent, utilities, or groceries.
Track Your Spending
We can’t begin to save until we know where to spend. Try and make a note of every penny that is being spent. The exercise will detect the individual purchasing pattern and we will be able to know the area we spend the most on- food, clothes, entertainment and so on.
Only when we analyze and are educated about our spending habits, we can take concrete steps to build our Empires!
Create an Emergency Fund
An emergency fund is a financial cushion that you create for you in case of any financial emergencies such as losing your job or coming down with a serious illness.
An ideal amount one might want to fuel up in the emergency fund would be 3-6 months of living expense in case you are employed and 6-9 months if you are self-employed.
The amount could be parked aside in a place where you could earn interest on your saved money but needs to be readily accessible. It’s a good option to invest this money in Liquid Mutual Funds or save them up in a High Yielding Bank Account.
Ensure that You Insure
Another important aspect that we often tend to ignore is Insurance which acts as a safety net that financially protects us as well as our family members when times get rough.
The concept is simple- You pay a certain monthly or yearly fee (premium) to the insurance company in return to provide you a financial cover in the event of any harm to the insured person or the object.
Know your Debt Income Ratio
Debt-to-Income Ratio is basically the percentage of debt own in relation to the amount being earned.
DTI = Monthly Debt Payments/ Gross Monthly Income
Never allow your DTI ratio to exceed 43%. It will make you less likely to qualify for loans and more likely to default on an existing debt.
Monthly Debt payments include student or car loans, rent or mortgage, credit card payments, utilities and other monthly bills.
Gross monthly income is what you earn before deductions
Learn, Learn & Learn
It is always better to keep yourselves acquainted with the basic concepts of trading and business which not only helps you to put your money in the right place but also to earn more from it.
The basic concepts of Mutual Funds, Shares, Debentures, Different types of accounts and terms used in bank transactions and what not. Never limit your learning. Research as much as you can the internet is a great source to start as a beginner. Just know the difference between fake information and the authentic one.
Always consult a professional before investing anywhere, it can be subject to market risks, as they always say 🙂
BEWARE OF SALES
In the end, the last but not the least advice being a teenager myself would be
Let’s not get tempted and end up overspending on useless items. So developing a process for deciding whether we should make a purchase would of immense help. Every time we buy something, we have less money to invest or spend on other things. Just ask yourselves:
How much will I actually use this?
How much money do I have to make to afford this?
Is it available elsewhere at a lower price?
These are some of my tips and tricks to manage finance.I hope using it in your daily lives will make your life and investments a little better.
AUTHOR
Muskan, a student pursuing Bachelors of Commerce from Kirori Mal College, University of Delhi has a professional aspiration of becoming a Chartered Accountant and acquiring a Master’s in Business Administration. Her career vision is to work for less aware communities in the world to help them stand amongst the competitive economies. The positive attitude towards experimenting with her own skills is what drives Muskan to write up blogs and papers with a target to make the basic financial information easy to understand and available for everyone.
Disclaimer: The views expressed in this article are the author’s own and do not necessarily reflect the views of the organization.
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