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Imagine a game that helps you achieve your dreams by managing your money wisely – that’s Financial Planning. This blog breaks down the critical concept into simple steps, suitable even for a 10th grader.

First, starting with setting your money goals, think about what you want in the future – like buying a car or going on vacations. These dreams are your goals and the foundation of your financial plan.

Now, think of budgeting as fitting puzzle pieces to track your money and ensure you don’t run out too quickly because of poor money management. But saving is like having a superpower; once you learn the art of spending wisely, it means having a secret stash for future surprises, like a safety net for tough times. Investing is a bit like planting a money tree, which will help you in retirement planning for exciting future adventures or a college education for your children.

And when you imagine having enough money for anything you want without worries, that’s Financial Freedom – like reaching the finish line of your money game. So, prepare to start budgeting, saving, spending smartly, and planning for an exciting financial future!

Tell your friends, what are you reading today…

But First, we need to understand that “Many people in India don’t plan their finances due to low financial literacy or a variety of options can be confusing. Some wait for a certain income before starting, while others avoid financial experts. It’s crucial to remember that the best time to begin financial planning was when you started earning, and the second best time is now.”

Here are some important things for young people in their twenties to know about Personal Finances:

1. Develop skills

Before diving into financial concerns, focus on developing skills. Learning, growing, and trying new things give you an advantage in your future job.

Having a clear strategy to increase your financial value is crucial. This might involve investing money or having a regular income source.

2. Preparing a Budget

Creating a budget is like mapping out how you’ll spend it and looking for ways to save. It’s like having a guide to help you manage your finances! Saving money is like building a shield to protect yourself from financial troubles. It’s like having the superpower to avoid debt and reach your goals!

Consider your income as a puzzle – save at least 10% of each piece (your salary) and watch your savings grow over time. It’s like planting seeds that eventually turn into money trees! Visualize your expenses as different teams in a game. You’re the coach, deciding which team to prioritize (urgent needs) and which one can wait (wants). It’s like strategizing to win your money game!

3. Guard Your Health

Being an adult, it’s important to safeguard yourself from unfortunate circumstances. Health insurance is like a safety blanket for when we unexpectedly get sick or hurt. Opting for insurance at a young age is a wise decision as it allows for savings and future planning. Certain employers offer health insurance, and there are affordable plans that provide considerable assistance. Such plans also aid in setting aside funds for medical expenses. Therefore, obtaining health insurance is a valuable investment in both our health and finances.

4. Avoid Debt

For most young adults, having debt is common. If you don’t have a plan to handle it, it can be tough to repay. Not having a plan leads to more interest and a lower credit score.

It’s a better idea to plan your money so you don’t need to borrow money if possible. But if you have to, like for an emergency, it’s important to have a clear plan to pay it back. If you don’t manage your debt, it can take a big chunk out of your paycheck. You might even borrow more money to pay back the old loans.

5. Pay With Cash, Not Credit

Credit cards are one of the most expensive types of debt. When you get paid, it’s smart to pay off the full amount you owe on your credit card. Don’t fall into the trap of paying just the minimum amount, if you do, the extra money you have to pay (called interest) will get bigger, and you’ll end up losing your savings.

Only use your credit card when something very important and unexpected happens. It’s better to be patient and control how much you spend. If you wait and save up money for the things you want, you can use that money to pay instead of using a credit card. Credit cards can be a useful tools for building a positive credit history, but it’s advisable to reserve them for genuine emergencies.

6. Create an Emergency Fund

An emergency fund is like a backup savings account that you can use when unexpected expenses pop up. It’s like having a backup plan that can save you from tricky situations. Think of it as a valuable resource to have. Even if you’re dealing with loans or credit card debts, or your income isn’t very high, it’s smart to set aside some money for emergencies every month.

Treating this fund as a fixed, non-negotiable expense is a great strategy. You’ll see that by consistently saving, you’ll end up with more than just an emergency fund. This fund is like a special savings account you keep for unexpected costs, like medical bills or sudden car repairs.

The best part is that having an emergency fund can lower your financial stress. It ensures you have money ready when surprise expenses pop up. If you don’t already have one, making an emergency fund should be a priority. Ideally, it’s good to have enough to cover your living costs for three to six months. But if that seems too much for now, you can start with a smaller amount and keep adding more over time.

In smart rule in personal finance  is “pay yourself first.” This means you save money for emergencies and for your future. Following this simple practice not only keeps you financially secure but also lets you sleep better at night. Even if your budget is tight.

7. Save for Retirement Now

Getting ready for retirement might sound like something far away, but it’s like getting ready for a special trip in the future. Imagine planting a tree – the sooner you start, the taller it grows. It’s the same with saving for retirement.

The earlier you start saving money, the more it can grow over time. Decide when you want to stop working and think about how much money you’ll need each month to live comfortably without a job. To make your retirement savings grow faster, you can put your money in different assets like stocks, mutual funds, savings plans, and FDs.

8. Setting Financial Goals

Creating a solid financial foundation is like crafting a roadmap for your dreams. Think of it like planning a journey. You don’t just start driving without a destination in mind, right? Similarly, setting financial goals gives you a destination for your money and helps you create a roadmap to get there. These goals act as the North Star, directing your efforts and resources toward the life you envision.

Do you want to buy a house or a car or ensure a comfortable retirement? These are your goals. If you’re planning to buy a bike within a year, that’s a short-term goal. If you’re planning to buy a house in five years, that’s a medium-term goal. And if you’re envisioning a comfortable retirement two decades from now, that’s a long-term goal.

Now, let’s talk about why all this matters. Your financial goals are like dreams that you want to turn into reality.

9. Tax Planning

Tax planning is a smart strategy to handle your money and taxes wisely. When you start earning money, your salary might look big, but you need to remember that the government takes a part of it as taxes. Tax planning is important because it helps you figure out how much money you’ll actually have after taxes and make sure you have enough for your needs and savings goals.

You can use online tools to calculate this after-tax amount. Also, the government has special benefits and rules that can help you pay less in taxes if you know about them. Tax planning is like a secret weapon to make sure you’re not caught by surprise and have enough money for the things you want and need.

10. Invest to build wealth

Investing means using your money to help it grow over time and reach your financial goals. It’s not only for wealthy individuals; anyone can start investing. You have the option to allocate your investments across various assets such as stocks, mutual funds, bonds, real estate, and more.

Diversification is a key – just as you wouldn’t put all your eggs in one basket, don’t invest all your money in one asset. Spread your investments across different options to reduce risk and give your investments time to grow, as it’s a bit like nurturing a garden. Your investment “garden” is your portfolio, made up of different assets like stocks, bonds, and cash. Understand the potential risks associated with various investments and diversify your portfolio wisely.

Happy investing and thank you for reading!

Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.