Even before we proceed towards answering the query, let us first learn about finance. Finance can be referred to as management of money.  In spite of other things having equal importance, money plays a major role in day to day activities.

One may argue that there is a barter system or exchange of goods and services etc.to manage daily activities. That is quite true, but the moment money came into existence it has occupied the whole space, and nothing can replace it now.  Having so much importance, money needs to be managed very calculatedly and finance deals with this science of money management.

Basically, Finance can be divided into three categories namely: – Personal Finance, Public Finance, and Corporate Finance.  Each category has a different money management technique. Let us now concentrate on Personal Finance.

Personal Finance is the management of personal or individual finances.  Normally, factors like budgeting, saving or investing and spending money towards the fulfillment of necessities keeping in mind of future events occurring in life all come under personal finance.  All these factors have to be dealt with very carefully because negligence in managing these factors may lead to debt.

Factors of Personal Finance:

• Budgeting

  : Budgeting refers to the estimation of your personal income and the expenses in a given period. This is a common practice any human being does irrespective of his income levels.  Budgeting is essential because until and unless you estimate your income and expenses you won’t be able to judge the final saving you can do.  Saving again is of two types-normal savings and compulsory savings.

• Normal savings is the amount saved after spending the money estimated in the budget.  It is not included in the budget.  Compulsory saving is the amount which has to be included in your budget.  The different types of compulsory savings are discussed below.

Making a budget is not enough; it has to be followed promptly.  Any small differences are okay but ensure that no bigger gap takes place.  When you budget, you will come to know about your sources of incomes.  In case you find the sources of income are less, you can always plan to increase your income levels.  The same applies to expenditure; if you find the expenditure is more, you can cut short some unnecessary expenses.

• Savings or investing:

  Savings is an essential and good habit which every human being should do. When an ant can save food for its future, why not we human beings at least make an attempt to save money for our future needs.  You never know when you will have the requirement of money.  The main idea behind saving is that in case of emergency, you can take out your saving amount to fulfill the need instead of approaching for alone. So, make proper plan if you have kids, secure your family.

• Saving can be done in four ways: Either you can save at home; secondly, deposit in some financial banks and thirdly invest it in some shares and fourth is invest in insurance-related products.
• Savings at Home: Well, when we consider the option of saving at home, I would say a small amount is preferable because there is always a risk of theft.

• Savings at Banks

  : When we consider the second option, you get a number of financial banking products such as savings account, recurring deposits, fixed deposits, etc. Saving in banks is always beneficial. You always get a certain percentage of interest on your saving.  Each type of account has a different interest rate which will be regulated by the respective government.  A piece of advice always monitors your transactions in your bank accounts as there are many cases of fraud taking place nowadays.  Whenever you find any such disturbance, ensure that it is being reported to the higher bank officials immediately.

• Invest in Stock Market

  : The third option of investing money in the stock market (which involves trading of shares, bonds, and mutual funds) is an excellent option because the return you get is also high. But you will have to face the risk involved in the purchase of shares.  The prices may hike or decrease any moment.  So, everything is uncertain. Always analyze the company details before investing.  Never trade in individual securities.  When you are investing in mutual funds, there are funds which consist of high fee initially.

• So, try to avoid paying a high fee and look for mutual funds with a low fee which balances between risks with comparatively good returns.

• Invest in Insurance products

  The fourth option of investing in insurance related products is an excellent act. Insurance products involve life insurance policies, medical insurance policies, retirement benefit related policies, etc.  Maybe initially you don’t get good returns, but in the long run, insurance policies are very beneficial.  Normally, investments in these products are made with an idea of availing the benefit in the long run. Investments in such products are made towards protection to family members in case of any mishap.

Whatever it is, whether you are employed or self-employed, you are bound to pay tax to the Government on all your incomes and savings.  So always check the tax relief given by the Government before planning your savings because some savings enjoy the tax relief and the individual need not pay tax on that particular savings.

Spending Money

This is something which you will find common in every human being. You can hardly find a person who is not interested in spending money.  Well, let us not consider people who are a miser.  I am talking about a human being in general.  Taking a loan and spending it unnecessarily is always risky and will lead to debt.  So be careful while spending money.

Planning your personal finances is a talent.  But to manage your family, you have to learn these tactics.  You also have the option of approaching professional services who will guide you in managing the finances. When the finances are managed properly, then management of debt will not be a problem.