A thorough understanding of personal finance dos and don’ts is crucial for every young adult trying to learn the basics of money management. From reaching financial goals to preparing for emergencies and building a corpus for the future, learning the dos and don’ts of personal finance helps you attain a solid all-around understanding of all money matters. This article outlines the most vital dos and don’ts of personal finance to help make the financial maze slightly easier to navigate.

• Creating a budget, tracking spending, and prioritising savings is an essential personal finance ‘do’.
• Investing in inflation-beating instruments after thorough research is crucial.
• Early tax planning and judicious debt management can go a long way in streamlining money matters.

Here’s a list of top personal finance dos:

Create a budget

One of the first things on this list of personal finance dos and don'ts is the act of budgeting. If you wish to live within your means, you have to start budgeting. Creating a comprehensive monthly budget with definitive fund allocations helps you monitor your income, track your expenses, and save consistently.

Build an emergency fund and get insured

Keep 3-6 months of living expenses stashed away in a liquid and easily accessible emergency fund. This safety net will come in handy when you’re faced with emergency expenses. Complete your financial protection with a suitable life and health insurance plan. Remember getting insured early will help you save on premium costs.

Save first, spend last

Next the obvious ‘do’ on our list of personal finance dos and don’ts is prioritising savings over spending. Adopt a ‘pay yourself first’ approach and automate savings such that a fixed sum gets debited from your account as soon as you reach your salary.

Invest early

Tap into the power of compounding returns by starting your investment journey early. Set your financial goals early and invest in instruments that offer high returns. If you start early, you will have ample time to recover from any potential losses. Build a diversified portfolio with investments in fixed-income assets like FDs and debt funds for stability and stocks and equity funds for high returns.

Focus on tax planning

Effective tax planning can help you invest wisely and lower your tax liability. Understand the tax implications of your earnings from different sources, deductions available, and exemptions granted. A nuanced understanding of taxation provisions will help you choose assets that offer the best tax-saving returns. Keep up with the revisions in tax laws introduced every year by the Union Budget.

Next, on our personal finance dos and don’ts guide, we highlight the 5 important things you should avoid:

Prioritise wants over needs

Prioritising your needs over your wants will help curb impulsive spending tendencies that can drain your wallet if left unchecked. You can keep overspending under control with the 30-day rule, where you delay a big-ticket purchase and see if you still feel the urge to buy it after the 30-day period.

Invest without understanding the product

When it comes to dos and don’ts of personal finance, this one is a crucial mistake to avoid. Refrain from investing in financial products you don’t understand. Educate yourself about the investment product and assess your goals and risk appetite thoroughly. Don’t invest under peer pressure or simply follow a trend. Always conduct thorough research and know what you’re getting into and what the worst-case scenario may be.

Stick to minimum balance payments

Paying the minimum balance on your credit card may seem like an easy way to cut back on monthly expenses, but it is actually detrimental to your personal financial health. Piling up high-interest debts like credit card dues can result in a debt spiral, not to mention impacting your credit score. If you love the convenience of a credit card, try repaying the entire balance instead of sticking to minimum payments.

Underestimate inflation

Most people overlook inflation on their personal finance journey. When estimating your savings and investments, it’s essential to factor in inflation. For instance, you need to account for inflation when estimating your retirement corpus value 30 years down the line. It is essential to invest in assets that offer inflation-beating returns to preserve the real value of your money and safeguard your lifestyle.

Don’t forget to review your portfolio

Your financial standing, goals, and risk appetite are not static parameters. As these factors change over time, so should your investment portfolio. Don’t forget to review and rebalance your portfolio annually to optimise investments and align your asset allocation with your current goals and risk profile.

Building a financially sound future may seem daunting at first, but it’s relatively easy once you figure out the basics. With these personal finance dos and don’ts, you can streamline your money management journey with ease. Stick to these basics and watch your financial woes disappear.

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