Top 5 money management tips to improve your finances

  • Your Money Articles

TABLE OF CONTENTS

Introduction

There are a number of life skills you learn in school. Like teamwork, time management and even self-discipline. But then again, there are some skills that you can only learn later in life. After all, learning doesn't end when school does, isn't it?

One of the many essential skills that you need to cultivate as you grow older is money management. It can help you put your money to the best possible use once you start earning. And that's not all. Being skilled at money management also makes financial planning and retirement planning easier.

5 Essential Money Management Tips to Cultivate:

If you think your money management skills need some improvement, you're in luck! Because today, we're going to decode 5 easy financial tips that will make you much better at managing your money in the coming months.

Check out these essential money management tips below.

  • Splurge Control

    Most of us are guilty of splurging impulsively on something. Some people splurge on shoes, others on books, and yet others on food. Whatever your guilty pleasure may be, over time, the costs of impulsive splurging are sure to add up.

    For instance, say you earn a monthly income of Rs. 40,000. And you like to splurge on your food every now and then. Let's assume each order you make on your food delivery app averages at around Rs. 500, delivery and taxes included. By itself, this may not seem like a large sum.

    But if you order in around 4 times a week, or 16 times a month, the costs add up to Rs. 8,000. And that is 20% of your income. See how splurging can affect your finances?

    So, the first money management tip is to find what you splurge on, and to rein it in.

    And here's a word to the wise - Don't try to cut down your impulsive buys all at once. That may not work for everybody, and you may simply end up over-splurging on it after a week or two of great control. Instead, take small steps towards your goal, and you'll be surprised to see how sustainable that is.

  • Analyse your Spends

    Apart from what you splurge on, there may be many other unnecessary expenses in your books. To identify what these are, note down the things you spend your money on. At the end of the month, sort your expenses into essential and discretionary spends.

    • Essential spends are the costs that you absolutely cannot escape, like your rent, fuel, utility bills, internet costs etc.
    • Discretionary spends are the expenses that you make on inessential or luxury products and services, like eating out, watching a movie, your gym membership, etc.

    If you find that there are some discretionary spends you can cut down on, that's a great place to begin at.

    Then, prepare a budget and factor in your essential costs. As for what remains after accounting for your necessary expenses - focus on redirecting that money towards savings or investments.

    For instance, if you earn Rs. 40,000 a month and spend Rs. 25,000 on your essentials, you are left with Rs. 15,000 in hand each month. Allocate a portion of this for your future each month before spending on discretionary items.

  • Plan for your Retirement

    If you are only in your 20s or your 30s, it is easy to put off thinking about your retirement because that day seems so far away, doesn't it? But your 40s are too late to begin retirement planning. Wonder why that is? Let's take the case of two individuals and see how early retirement planning can pay off in a big way in the future.

    Particulars

    Individual X

    Individual Y

    Age at which they plan to retire

    60 years

    60 years

    Age at which they begin retirement planning

    25 years

    40 years

    Number of years left until retirement

    35 years

    20 years

    Amount invested each month

    Rs. 10,000

    Rs. 20,000

    Expected rate of return

    10%

    12%

    Total retirement fund

    Rs. 3,82,82,767

    Rs. 1,99,82,958


    Individual Y was late to the retirement planning party. So, this investor had to invest more than individual X - that too in high risk assets. Even so, individual Y only managed to build a fund of Rs. 1.9 crores.

    But individual X began retirement planning early, and so, managed to accumulate a retirement fund of Rs. 3.8 crores!

    The bottomline? Think about retirement planning early enough, and start planning for that phase of life before it is too late.

  • Get Friendly with your Taxes

    Taxes can make or break your savings. All income is taxed (mostly). But not all investments offer tax benefits¹. So, take some time out to get to know how your income is taxed, and what investments can help you bring down your tax burden and simultaneously help you fulfil your life goals.

    Section 80C of the Income Tax Act, 1961 is one of the most relevant provisions when it comes to tax planning. Under this section, you can claim a total deduction of Rs. 1.5 lakhs from your taxable income.

    Here are some investments that give you tax deductions under section 80C.

    Investment scheme

    Lock-in period

    National Pension Scheme (NPS)

    Till your retirement

    Unit Linked Insurance Plan (ULIP)

    5 years

    Public Provident Fund (PPF)

    15 years

    Sukanya Samriddhi Yojana

    21 years

    National Savings Certificate

    5 years

    Senior Citizen Saving Scheme

    5 years

    Equity-Linked Saving Scheme

    3 years


    Apart from these schemes, life insurance plans also offer you tax benefits¹ on the premiums paid.

    Then, there are some expenses too that you can claim as tax deductions under various sections of the Act. Here is a preview of some such expenses.

    Expense

    Relevant section of the Income Tax Act, 1961

    Maximum deduction allowed per year

    Principal component of home loan EMIs

    Section 80C

    Rs. 1,50,000

    Interest portion of home loan EMIs

    Section 24

    Rs. 2,00,000

    Interest portion of home loan EMIs

    Section 80EE

    Rs. 50,000

    Medical insurance premium

    Section 80D

    Rs. 25,000 for self, spouse or child, and an additional Rs. 25,000 for insurance taken for your parent (Rs. 50,000 if they are senior citizens)


    Knowing these provisions can help you take advantage of tax benefits¹ and reduce your tax burden. This, in turn, can help you save more and manage your money better.

  • Create an Emergency Fund

    This is one of the many financial tips that can help you get better at money management. Early in your career, make sure you start building an emergency fund to take care of financial contingencies. This fund will come in handy if you have an unexpected home repair to pay for, or a medical emergency in your family.

    Ideally, your emergency fund should be worth six months' of your family's total expenditure. And it should be easy to access. In other words, you need to choose liquid investment options or financial products, like a high-interest savings account, money market funds or liquid funds.

Conclusion

These money management tips can help you make smart decisions about your savings and investments. You can also make use of these insights to get better at financial planning and retirement planning, both of which are very crucial. Remember that managing your money is a science and an art. So, keep the emotions out of the equation and use the right financial tips. That will make money management much easier and more effective.

¹ Tax benefits are subject to changes in the tax laws.
ADV/4/22-23/99

Author

Term Products

ABSLI Life Shield Plan

A term insurance plan that offers you the flexibility of plan options suitable for your family's non- negotiable goals and ensure they need not compromise on their lifestyle. UIN: 109N109V06

  • Choice of 8 plan options
  • Cover your spouse under the same policy
  • Longer Life cover till age 85

ABSLI DigiShield Plan

PROTECTING multiple life needs with one plan is now possible. UIN 109N108V08

  • 10 Plan Options to suit your varied protection needs
  • Flexible death benefit pay-out options
  • Life insurance cover for 1 year or till age 100 yrs

ABSLI Saral Jeevan Bima

A simple plan to protect your family’s financial future (UIN 109N128V01)

  • Simple & affordable plan
  • Flexible premium paying terms
  • Enhance insurance cover with rider

Need help in buying life insurance?

+91
I agree to the Terms of Usage and Privacy Policy and authorize Aditya Birla Sun Life Insurance Company Limited and its associates to call/SMS/Email/WhatsApp me.

Thank you for your details. We will reach out to you shortly.

1800-270-7000 or reach out to us on this number.

Thank you for your details. Currently we are facing issue in our system.

1800-270-7000 or reach out to us on this number.