Are you always in a worry on how to plan your income and investment?
“According to a report submitted by CNBC in 2019, In India there are 62% of people who earn doesn’t plan their expenditure. While 47% people feel stressed out due to investment planning
Often I think why we don’t have any basic financial course at the school level. Did you hear some rumors that the government is introducing financial learning for young kids? Most of the parents send their children to school so that they can pass exam over the exam to get the job. Everyone talks about how to make more and more money. No one talks about saving and investing for future. Except some uncles (or bank advisors) who give you free advice on investing money in insurance products linked with saving schemes which promise to make you rich after 20-30 years.
Most advisors sell you bullshit !
You should learn yourself how to manage you own money.
What is financial management?Financial management is taking control of your cash flow. Money is coming into your account and you control how much money should go out – at what time and in which direction. Once you have your finance managed all you need to do is stick to the plan and try to manage your finance as close to possible to the plan. I as a finance analysis always below mention 4 points to efficiently plan your finance-
1. Track your Income and Expenses –
Find out what’s been eating away your Income, figure out on a monthly basis where you’ve been spending unnecessary money. Once you’ve figured them out, start saving that amount and reinvest them back into your savings. This tracking of income and expenses will not only help you to reinvest but also help to audit your account at the time of tax paying. I prefer either excel or some app such as invest track, expense manager, Moneyfy.
2. Create an Emergency Fund-
As you all are aware about the current going covid19 pandemic, this is some unplanned situation that can come in anyone’s life. Always ensure you set aside a % of your income and put it inside an emergency fund. This will help you safeguard yourself from future uncertainties that can help you or your loved one when so ever required.
3. Clear Debts/ Borrowings-
Never ever at an early age have any loans or borrowings. If you do, please clear them off immediately. Reason being, if we start accumulating debt or EMI at an early age, then we will end up playing a catch- up game and thus hurting your savings plan. Plan should be save at an early age and let the saving go compounding which will help you fulfill your long term goal.
4. Invest your Income-
Investments are important for all of us because it acts as a safety net for the future. We would need money for a lot of reasons in the future, be it our studies, marriage, kids or retirement. All of these needs won’t be fulfilled with just saving up money. There has to be some other activity that could get us that money and ta-da! Investments are here to help you out. Also, diversifying our investments is also essential. They do say that never put all our eggs in one basket!
How much to save/invest/spend?
Senator Elizabeth Warren popularized the so-called “50/20/30 budget rule” (sometimes labeled “50-30-20”) in her book, All Your Worth: The Ultimate Lifetime Money Plan. The basic rule is to divide up after-tax income and allocate it to spend: 50% on needs, 30% on wants, and Invest 20% to savings. This rule came into highlight after the book published in 2005 but considering the pandemic scenario or any unwanted emergency, I have fined tuned the rule as “50-20-20-10 Rule”, which now means 50% on needs, 20% on wants, and Invest 20% to savings and 10% to emergency needs.
So what basically comes under this percentages. According to the rule
According to this thumb rule:
- 50 percent of the earnings after tax should be used towards necessities.
- 20 percent of the money should be spent on luxuries or wants / desires.
- 20 percent money should be saved and invested towards your financial goals.
- 10 percent money should be saved for emergency fund
Most difficult question what people face is how and where to invest the 20% money. For which I have created an finance calculator as shown below. Please click the below link to go to the calculator. This calculator will take 2 inputs from you as to
- Enter the Annual take home income after removing taxes.
- Enter the goal amount you desire for with your savings and in how many years.
This calculator will output you the investment per year based on 50-20-20-10 rule and also let you the Rate of interest of the scheme/funds/shares/FD or any other option which returns you the money as per ROI. This rate of interest mention is annually and compounded annually just as any normal case. With the help of this rate of interest, we just need to figure out the options which in total will give you the mentioned rate of interest. Knowing this one can choose the high/medium/low risk of investment to achieve his/her goals.
I hope know all of you have some idea how to manage your income and have s stress free like. Still if you have some doubt, I have made the comment section open to solve one’s query. Stay Happy, Stay Safe.
Other Blog’s to read-