Thank you for your interest in our product. Our financial expert will connect with you shortly to help you choose the best plan.
If you want to move forward from “earning money” to “making money” and becoming wealthy, you must think of ways and strategies to manage your money more effectively. Money and personal finance management can help you keep expenses within budget and invest your money such that you achieve your financial goals.
Money management defines how you handle your money, right from budgeting your expenses to investing, depending on your goals. It helps you make the most out of your hard-earned money. Money management focuses on reducing debt, investing for your future, and optimising your expenses.
Without effective money management, your personal finances could go haywire. You may end up overspending and struggling to make ends meet even if you earn well. Money management can help you build a better grip on your money so that you can be financially healthy. Learn more in this blog.
Key Takeaways
Good money management maximises your hard-earned money to be spent effectively to meet financial objectives.
Budgeting, monitoring expenses, avoiding debt traps, and investing first are some of the major principles of responsible money management.
Frugality is used to delay unwanted spending and prioritise existing resources for wealth creation.
Effective tax planning by utilising EEE investments such as NPS, PPF, ULIPs, and life insurance savings plans can fetch long-term financial security.
Sound risk management through insurance safeguards your assets and your family's financial security.
What is the Principle of Frugality?
Starting from scratch and getting things done at the least expense is an indication of being frugal with spending. Putting off expenses that can be postponed and trimming expenses that are not required can save money that can be spent more productively.
When you work with constraints, the existing resources are optimally utilised. The money thus saved can work hard in parallel and grow with time. Some pro tips of frugality:
Avoid spending for vanity, snobbery or to join the trend
Choose the most cost-effective option
Spend on interest-bearing avenues
Have a clear ROI or a cost-benefit matrix for any desired expenditure
Process of Money Management
Effective money management begins with regularly reviewing your investments and tracking how much you contribute from your income each month. Put a budget in place so that your spending is under control and more money is invested in building your wealth kitty. A clear process like the one given below can help:
Set A Budget: A budget is the foundation of money management. It frees up a lot of money that you would have otherwise spent on unnecessary stuff. While it does not take much time to prepare a budget, what needs effort and dedication is always sticking to that budget. You may initially find it a bit difficult, but you will eventually develop the habit.
Keep Track of Expenses: Preparing a budget is only scratching the surface of the money management process.
You must maintain a clear and comprehensible account of expenses. What is not measured cannot be monitored.
Spend some time each month evaluating your expenses.
Ordering food every weekend may look cool, but how much are you paying for the food, taxes and delivery? “Long drives” may seem fun to unwind, but is the fuel bill burning a hole in your pocket?
Summing up these expenses will give you more clarity and draw your attention to where it is needed the most.
Plan Leisure Spending: This should ideally be part of your planned budget. However, you can give yourself a small leeway by spending some amount outside your budget. Go and spend occasionally, and let this be “outside the budget”. However, let such amounts not be too extravagant.
Avoid the Debt Trap Situation: Banks will offer you loans and credit cards. You don’t have to take them even if you can afford to repay them. The only exception could be emergencies. If you are availing a loan to buy an asset, try investing in an asset that appreciates over time. Buying depreciating assets using loans and credit cards could soon push you into a debt trap.
No Impulse Buying: Evaluate options before you buy anything. Spread the buying decision process over a few days or weeks. Walking into a random shop, while in a mall to watch a movie, and buying something without a second thought is not a financially prudent decision.
Invest First, Spend Later: Income - Savings = Expenses should be your financial mantra. Save money from your income each month. The rest can be used for your monthly expenses. The amount you save should be a well-thought-out and calculated amount. It should align with your short- and long-term goals of reaching a certain corpus.
Mitigate Risks: Risk management is a critical part of money management. Get yourself covered with:
Life Insurance for your family’s security
Health Insurance to avoid out-of-pocket medical expenses
Plan your Taxes: Improper planning can cost you loads of money in taxes. If you explore the right investment avenues, you can save taxes on three fronts, namely:
At the Time of Investment: For example, if you invest in an endowment plan or ULIP, the invested amount is deductible from taxable income, u/s 80C. So, you save tax on the amount invested.
At the Interest Accruals: Accrued interest in the investments could be taxable, as is the case with some of the most popular fixed income options. However, the best tax-saving investments will enjoy a tax-free interest accrual.
At the Time of Maturity: No TDS is deducted on maturity because insurance maturity amounts are exempt from taxes in line with the provisions, u/s 10(10D), of the Income Tax Act. Such investments are also referred to as EEE investments, which stand for three levels of tax exemption.
What are the Efficient Tax Investment Options?
You have multiple investment options when it comes to EEE investments. The following are some of the most important you can use:
1. National Pension Scheme (NPS):
Invest up to the age of 70,
Normal withdrawals are permitted from the age of 60
Diversified portfolio investment into equity, debt, and alternative assets
Automated portfolio management (for asset mix)
Additional deduction of ₹50,000 over the 80C limit
2. Public Provident Fund (PPF):
Minimum investment term of 15 years
Partial withdrawals are available from the 7th financial year onwards
Can be extended in 5-year tranches multiple times after maturity
Returns have a sovereign guarantee
3. Unit Linked Insurance Plan (ULIP):
Diversified portfolio investment in equity and debt funds
Partial withdrawals are allowed after 5 years
Investment tenure can range from 5 years to up to 99 years of age
Bonus additions for long-term investors
Automated portfolio management options
Life insurance cover up to 15 times of annual premium
4. Life Insurance Savings Plans:
Investment tenure of 10 years to 99 years of age
Returns are guaranteed
Bonuses for long-term investors
Life cover of up to 25 times your annual premium
At the outset, you may find it difficult to plan and defer purchases you cannot afford with your cash in the bank. But avoid the temptation to spend on your credit card. Save a fixed amount each month first before spending money. Once you build these habits, you will find it easier to save money, generate wealth and have a stress-free, financially secure life.
Did You Know?
An insurance provider must settle the claim within 30 days of receiving all relevant documents after the natural death of the policyholder.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
We bring you a collection of popular Canara HSBC life insurance plans. Forget the dusty brochures and endless offline visits! Dive into the features of our top-selling online insurance plans and buy the one that meets your goals and requirements. You and your wallet will be thankful in the future as we brighten up your financial future with these plans.
