Why personal finance is crucial in everyday life! Importance of making different pots of savings

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Personal Finance

Personal Finance allows you to take charge of the driver seat and gives you the freedom to reach your financial goals. It empowers you to make the most out of your income by making financially savvy decisions.

There are many benefits of personal finance and capturing the never-ending list can be exhaustive but here are few of the benefits which make personal finance a crucial part in everyday life

Helps in Budgeting – The Balance of Expenditure and Savings from Income

Every month you may be earning money which is more than sufficient to support your living standards, yet you may experience cash crunch before the end of the month. Whereas someone earning lesser than you may be living a financially sound and secured life, and the reason behind this would be Budgeting.

Planning your expenditures based on your needs, saving your income based on your financial goals, sticking to your budget and planning your taxes allows you to save more and achieve financial stability in the long run.

Helps build financial security – Save your money and your money will save you

Planning your finances unlocks the potential of how much you can save to build a financial security for your future needs. Managing risks through insurance, having the right investment plan based on financial goal and ensuring liquidity as a part of emergency funds builds on your financial security and acts as a safety net for you and your family.

Helps in avoiding unmanageable debt – Adjusting your lifestyle

Overspending, impulse buying and spending on things that are unnecessary may lead to spending more than you earn. If your lifestyle involves exhausting the credit limits of credit card and borrowing money, then it is likely that you may end up in huge piles of debt and it can affect your financial security as well.

Personal finance helps you to avoid this by keeping a check on your income and expenses and to adjust your lifestyle based on your income.

Helps in raising Standard of Living – Cushion for tough times

Planning your finances helps in increasing your savings, which also leads to incremental amount left for investment. Higher savings and growth of that savings increases your net worth and helps you deal with financial challenges and exigencies in a better manner.

Allows to manage achieving financial goals – Measure of your progress

Budgeting, building financial security and managing debts allows to maximize savings and the aim of savings would be to grow it for achieving your financial goals in a disciplined manner. Keeping a regular check on your actual as against target savings, repayment of debt, surplus reserves and other such measures could be a great indicator of your discipline and progress.

Multiple pots of Savings

Imagine a real-life situation where you have lots of clothes but a small cupboard, financial goal can be compared with getting all your clothes neatly arranged in the cupboard whereas personal finance can be compared with how you arrange it in different stacks such that it eases your life whenever you want a piece of clothing.

Even as a child, we used to keep a piggy bank for saving money. The only thing that has changed is that we have many goals now and saving money for all those goals at a single place can lead to loss of track.

Instead, the Jam Jar method can be used which involves dividing your money into separate pots for different expenses. This method ensures that your expenses are covered, and the money is going exactly where you wanted it to.

One may feel the need to crunch everything on a spreadsheet, but the pot of savings has more to do with segregating the money, having a clear picture and benefit from sticking to the rules.

Track and measure your progress

Having multiple goal-based investments or savings account for each goal allows you to track your progress and set a plan for future contributions based on the time required for that goal. Prioritizing your goals become manageable and contributions can be shuffled based on changing circumstances and requirements.

Disciplined and Systematic Approach

Keeping all funds at a single place may give a rise to temptation to overspend or splurge on non-essential things. Multiple pot of savings allows to resist such temptations and allows you to take a disciplined and systematic approach towards saving for a goal

Creating multiple pots of savings easily

With the online banking and investments platforms, creating multiple pots with savings accounts, fixed deposits, provident fund or mutual fund investments based on the goal has become quite easy.



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Disclaimer

Views expressed above are the author’s own.



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