How To Plan Your Finances Better?

Managing your finances effectively is one of the most useful skills you can have in your arsenal. It is both an art and a talent that is best instilled in a person from the start. Of course, staying debt free is the ultimate freedom – the financial heaven you’ve always envisioned in your mind. However, every now and then an opportunity may arise that requires you to take out some form of credit or personal loan. Using credit is not a complex task, but some find it difficult to repay the amount on time. All you need is some self-discipline to manage your monthly budget.

In its prime, it is easy to be swayed by the glitz and glamor of the world. It is often an insignificant spectacle to see young people wasting their hard-earned money. In today’s relentless marketing era, millions of brands are racing to get as many customers as possible. Sometimes we see people get caught up in the targeted ad network when they end up getting things that they don’t really need. Remember the cardinal rule here. Never make the mistake of taking a personal loan and then treating it as an extension of your paycheck. It’s nothing more than inviting trouble on your own.

Here are some personal finance guidelines or best practices for effectively managing your finances:

Creation of a contingency fund

The nature of life is quite uncertain. Accidents and incidents can happen without warning, often when we least expect them. Therefore, it is prudent to set up a contingency fund to deal with any unprecedented event or emergency. All you have to do is allocate a fixed amount from your salary. It can be kept in any liquid asset comparable to a term deposit. This will help to ensure that you continue to receive a certain amount while the fund is ready for use as the situation demands. This fund should not be used for any purpose as it is strictly intended to meet unforeseen contingencies only. You will find that this fund will prove to be a blessing whenever you need it most.

Planning and respecting your monthly budget

Just because you earn well does not mean that you spend needlessly. If there’s something you really don’t need, there’s no point in buying it regardless of the price. It is essential and prudent to create a monthly budget and to follow it sincerely. It is best to avoid impulse spending so that you can make the necessary purchases whenever demand increases. Get in the habit of comparing prices before discounting any purchase. In today’s digital age, all information is easily accessible on the Internet for your reading with a single click. This is imperative to help you stick to your monthly budget while saving some savings along the way.

Compare lenders before resetting a personal loan

Credit cards are definitely an expensive debt option with potential fallbacks. If you are having a small last minute expense, it is prudent to go for an instant loan available at low interest rates. Since the

Select the appropriate duration

Although the interest rate is set by the lender and the loan amount based on your apparent financial need, you have the flexibility to decide the length of the loan. It is recommended that you use a personal loan EMI calculator before finalizing the loan term. This will help you to modify the mandate as needed and also come up with a comfortable NDE. This will help you make sure that the EMI fits your monthly budget and doesn’t become a liability.

Maintain a desirable credit score

After receiving a salary for six months, your credit history automatically becomes available for evaluation and CIBIL grants you a credit score. This credit score is basically a numerical representation of your credit history and can range from 300 to 900. Any score above 750 is considered desirable and most loan applications with this score tend to get faster approvals. While it’s easy to get a loan, the tricky part is paying it back on time. You need to repay your EMI dues on time if you want to maintain a positive credit rating and remain credit worthy at all times in case a crisis arises in the future.

Prepay your loan when possible

Usually, most lenders put the foreclosure clause squarely in any loan agreement. Ideally, you can foreclose the loan within six months by paying off the principal; either by installments or in full without fine for early payment. It is suggested to check the loan agreement corresponding to this clause as it gives you the option to choose the highest term at the start of the loan itself. After you have served the loan for six months, it is recommended that you deploy additional funds for the prepayment of said loan. It will also help reduce your outgoing interest. In short, it will prove to be a smart method of optimizing your personal loan to derive the maximum benefit from it.

Managing your finances is a huge responsibility. But if you diligently follow the aforementioned financial tactics, you will find that you are capable of weathering any storm that comes your way.

The author, Rohit Garg, is the co-founder and CEO of SmartCoin. Opinions expressed are personal

First publication: Dec 29 2021, 12:06 IS