Managing Personal Finance and Ethical Investing
Did you know that most stress that we face in the modern world is caused by money? Quite often we see people go bankrupt or even commit suicide. This happens because many do not have control over money. Managing personal finance is not rocket science. It takes only a minimal effort to manage money. This blog not only aims at helping middle income groups to manage their finances but also suggests avoiding some investments which would be unethical. It helps to live within your means by making you have full control over your money.
Collecting data is the first thing needed to control money. The processed data is called a budget when it comes to managing money. In order to make a budget, all bills including your house rent, daily purchases and utility bills must be collected, categorized and recorded. Debt and equity-based investments such as mortgage payments, insurances, deposits, corporate bonds, mutual funds and shares have to be noted every month. Also income from different sources such as salary, interest from investments, receivables from the business has to be noted. In short expenditure, investments and income should be written down for every month. This data helps to visualize and analyze one’s financial position. For example, if the routine expense is more than say, 75% of income, it means that one has to control his/her expenses. Thus, budgets are a tool to control money to live happily.
Many of us think controlling expense comes at the cost of standard of living, but it could also be real fun. It would feel great for anyone to realize that their expense has come down from the previous month without compromising anything, isn’t it? Bills can be reduced by planning the number of cafe and restaurant visits. Partying in the backyard or terrace and serving homemade food and drinks (with the soft music of course) will be convenient and authentic for your neighbours and friends; a safe bet on your wallet as well. Avoiding tour packages and choosing a less explored spot (food and stay expenses also will be cheaper in such places) makes your tour a memorable one. Often, gifting homemade articles instead of buying expensive gifts saves your wallet and also makes the receiver happier since your labour on it enhances love.
The following simple tips would help to control your regular expenses. In terms of household expense, using energy-efficient goods such as LED lamps and energy-efficient appliances can help reduce electricity bills. Investing solar panels will save us from ever-increasing power tariff and will reduce our carbon footprint too. One must also make use of government subsidies for installing solar panels in businesses. Packing homemade food to office or school helps to live healthily as well as save money. Groceries can be bought in larger quantities wherever possible to make it cheaper. It is important to analyse the need of a product before buying it. This would reduce unnecessary expense. It is important to plan your expenses like clothing in advance for festivals and occasions and allocate a fixed amount for that.
Managing bank accounts and credit cards are necessary to effectively manage money. Buying rebate rewards credit cards helps to gain some amount after a year. Suppose one spends 3000 Rs. on a credit card, 15 Rs. to 30 Rs. would be rebated into one’s account. However, this should not encourage the excess usage of credit cards because credit cards usually charge high-interest rates for delayed payments. In most cases, it is better to use debit or cash to buy cheaper things like food and groceries. Because these expenses though they seem small, add up highly on credit cards. Moreover, we tend to spend higher when we use credit cards. Credit card repayment dates must be tracked carefully using online banking tools to ensure proper repayment of the amount to avoid high interests.
Investments such as insurances and deposits (recurring or fixed) intended for marriage or education expenses of children are essential to avoid sudden unavoidable expenses. Disposable income is the money left over after all expenses including essential investments such as insurance. It must be invested through the right channels. Equity investments such as investment in shares, mutual fund SIPs, ULIPs and debt investments such as post office savings are some of the choices available to avoid or reduce income tax (under section 80C). Such investments helps you to be a part of our country’s growth. A golden rule for investment is that no more than 20% of your disposable income must be invested in equity. Investments can be classified according to its risk and returns. Depending on financial goals and age, one can choose different investment types. For example, during retirement, people tend to invest on safe investments rather than stock and shares. Bank deposits, public bonds, provident funds are possibly the safest forms of investments for financial goals such as retirement, higher education and marriage expenses. Forex trade, futures trade on commodities are also preferable forms of medium risk investments. A small, careful investment can also be made on promising stocks (high-risk investment).
In my opinion, we should also be ethical when we expect a return from the investment. According to me, the real estate sector has damaged affordable living. Since shelter is an essential need for survival, laissez-faire must not be allowed in this sector. We may buy a piece of land to build a house and maybe a few to increase rental income. It may reduce the demand for rental houses. However, the practice of buying and selling lands for profit must be strictly prohibited since it will artificially inflate prices and the land may not be affordable to the poor. In social economies such as Norway and Sweden, individuals cannot own more than two houses since it may promote price wars. Gold investment is not as unethical as land. I oppose it because in India owning gold is, to a great extent, to display wealth rather than being an investment. It promotes dowry and it is a dead investment as far as the economy is concerned. Also, one must make sure that our investments do not pollute our environment nor it is used for the exploitation of natural resources or living beings. Government or regulatory boards must ensure that investors and companies are safeguarded against unethical futures trading and stock price manipulation.
Thus managing money is not rocket science and the simple steps mentioned in this essay namely, budgeting, controlling expenses, managing bank accounts and credit cards, investing wisely can make your financial matters look clearer. This clarity is necessary to avoid money-related stress and to improve one’s living standard. It is true that ‘A penny saved is a penny earned’. Therefore, it is important to manage money. We could also avoid certain forms of investments so that our investments do not hurt others.