Important points to follow in Personal Finance

Important points to follow in Personal Finance

One is never too old to set one's finances right. From my learning of the Dynamics of Personal Finance, the following points are very important:

A.    Know your ‘Average monthly expenses’.

B.     Always remember the difference between an Asset and a Liability. Buy Assets. Never buy a liability (believing it is an Asset).

C.     Multiple sources of income is the way to becoming rich; however small, those sources of income may be.

D.    Diversify; Diversify; Diversify! Diversify your investments. More the diversity, lesser the risk.

E.     Saving / Investment in the following order:
·        Emergency cash (anywhere between 3 months to 12 months expense money), 
·        Life insurance,
·        Medical insurance (of the earning member),
·        Money for dependent’s (parents’ and / or children’s) needs,
·        Fixed Deposits in banks,
·        Bonds (other than FDs in banks),
·        Equities (Stocks / Mutual funds),
·        Real estate etc.

F.     Pay yourself first. Save first from the income, and then pay others.

G.    Have a good tax consultant, a banker, a stock broker, an insurance advisor, a lawyer, and an accountant, as part of your team. Pay them well for their services. They will serve you well in the long run.

H.    Invest and monitor your investments closely, like a hawk.

I.       Allocate your assets (investments) to suit your risk profile and needs.

J.       Re-balance your portfolio regularly.