The Importance of Personal Finance Management

Personal finance deals with money management of an individual. The aim of personal finance is managing your own job, business, salary, profits, personal assets etc. today in a way that leads to greater wealth build up in future.

What is personal finance management?

You have seen companies listing their annual reports. These reports consist of balance sheet, cash flow and income statement. These reports help you to gauge the financial position of the company at time of publication.

The Importance of Personal Finance Management, The Importance of Personal Finance Management

Why is finance management important? Example of finance management.

These statements help ascertain the assets, liabilities of the firm, and whether the operation of the company is generating positive cash for it. It also bares before you the trend of the firm, whether it is generating increasing profit or being stuck in debts. Stagnation in output or profits becomes clear to you once you study the successive annual reports.

Similarly, personal finance deals with money management of an individual.

The aim of personal finance is managing your own job, business, salary, profits, personal assets etc. today in a way that leads to greater wealth build up in future.

Let us glean over some of common ways for personal finance management.

For an individual, many avenues have opened for wealth increase. It is better to consult an expert in personal finance domain to pick the best avenue of personal investment.

Income after retirement

NPS or National Pension Scheme is one of the safest slow asset builders. Professional body of Pension Fund Regulatory Development Authority (PFRDA) manages it.

As per your risk profile for final wealth build, you can choose to invest in equity, index futures, and fixed income instruments or in government securities in NPS.

This fund has the lowest operating cost among any such professionally managed funds. Not only do you have government securing your principal, but also if you are not happy with returns, you can change your fund manager easily.

Pros lie in the fact that on maturity after a minimum fixed period, 40% of the matured amount has to be put in annuity schemes of any pension insurance company (who are eligible to offer annuity package on NPS maturity). The rest 60% maturity amount is now tax free in hands of investor.

It's major advantage lies in the direct deduction you get under 80CCD, 80C, 80COB, 80CCD(1B) for your own and employer's contribution.

Another necessary part of personal finance management deals with securing yourself from medical emergency financial needs. If not properly insured, such an expense can literally drive you to streets.

Securing yourself from medical finances

Consult an expert in the field of medical insurance to find out the best offer for the type of medical insurance you have in mind. There are multiple such companies (ICICI LOMBARD, BHARTI AXA, HDFC ERGO, IFFCO TOKYO, Apollo Munich, STAR HEALTH, New india Insurance etc.) offering a variety of cover against general, critical diseases and for outdoor, day-care, hospitalisation needs. There are hundreds of clauses and conditions, so this part of personal money management mandatory needs expert.

Wealth build-up

If you prefer quicker build-up of wealth albeit with market risk, go for mutual funds. Choose a fund led by the find manager who has produced consistent returns considerably above interest rates, even when the markets were down.

In case you wish to get a maturity amount, which beats the interest rate, and carry a commitment of return from a trusted party, you can choose the commercial papers, NCDs of reputed companies as well as government bonds. Riskier the bond, higher is the return you get. You do not need be a financial expert to ascertain the risk profile of the commercial paper you want to invest.

Rating agencies like ICRA, CRISIL, CARE do that job for you so that you can invest securely. You can also choose liquid or debt mutual funds, which have an expert team to invest in these papers.

Another advantage of these bonds lie in fact that they are traded (though thinly) in secondary market.

Infrastructure bonds carry additional advantage of providing extra savings deduction.

Secure family from income stoppage

When we talk about personal finance, the aim is also to create a safely moat around us. One aspect of this moat is life insurance. Life insurance is broadly classified in three: 1) endowment (where you get a lump-sum amount on maturity),
2) Payback policies where you get a fixed amount of payment after certain intervals once a term is completed and
3) Term policy, which gives your nominee a substantial claim only on policyholder's demise. It requires a very low premium but does not yield anything on maturity if the policyholder is alive.

Personal finance websites

Apart from physically interacting with the experts in the field of personal finance (it is essentially managing your expenses, properly utilizing your revenue / salary and utilizing your assets so that together they work to increase your wealth to a predetermined level), you can visit sites like

  • Jago investor
  • One mint
  • Subramoney
To get readymade answers on personal finance queries. You can post your own doubts there to clear the air.

In case, you want to dabble in shares to get to your target wealth level pretty quickly, you may check out:

Personal finance apps

In older days, people scribbled and calculated on paper scraps their daily expenses, revenues and calculated manually. It was replaced by Excel sheets. However, the availability of personal finance apps like “bluecoin” has changed the rules. In this app, not only multiple classes of expenses and revenues are available for categorized input, but you can also study their trends visually. Graphical display of trend for net assets, revenue, expenses or expenses vs salary are vital for personal finance. They help you to pinpointing where you are going wrong. (mounting expenses in a particular category). Or improving (increasing revenue from a channel).

This app also allows you to enter every detail of your credit card loans or EMI, so that it can correctly alert you on the D-day of EMI or credit card payment.

Apps like bluecoin, bankbazaar (from which you can apply for personal loans or compare rates of personal loans) are essential tools in your money management.

Start today!

Go online, study the sites given here, use the money management apps described and consult experts in this field, soon you will feel increase in efficiently using your assets today to build a much wider base in future.


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