Art of Managing Personal Finances


We are observing Teacher’s Day today. While schools and universities play their role in education, we are now in the age of self-learning. In an interconnected world, there are opportunities to teach yourself something new every day. Learning to manage money is an important need for every adult. Here are six lessons that should stay with you and help you refine your financial decisions.

Do your homework

Money is a scarce resource for most Indian households. Managing it well is critical to good outcomes for life. This is easier said than done. Financial information is steeped in jargon. Making sense of it is tough for most people. But if you’re going to have the outcomes you desire from life, you must make the effort to understand what you’re doing with your money.

For example, we’ve seen that tens of thousands of miss-selling cases get reported to the insurance regulator every year. The complainants have been sold products that don’t work in their interests. The way to avoid these problems is doing your research and comparisons, and reading through the terms and conditions.

Understand the math

Most people’s formative memories are full of the challenges they faced with mathematics in school. It’s hard. But at the very least, as an adult, you must understand the complexities of financial math. This is important to get the best out of your finances.

For example, one of the least understood and perhaps the most important thing in financial math is the power of compounding. It can turn a small investment into a fortune or a small loan into a crushing debt trap. As a quote attributed to Einstein goes, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” Learn to harness this power. It will strengthen your finances.

Work towards goals

In school, you must have worked towards targets — like completing a course by a certain age or scoring a certain number of marks in an exam. Similarly, goal-setting in finances is critical. How would you get to where you want to be if you don’t know where you’re going? Some of the best financial outcomes result from goal-setting, and some of the worst result from the lack of it. We’ve seen that Indians are most concerned about two goals: home ownership and saving for their children’s education. With a goal, you can work backwards, break down your money needs into small, achievable steps and pick the right investment tool to help you achieve it.

Understand yourself

Your formative years in school or college would have helped you understand yourself — what works for you, what doesn’t, who you aspire to be, and so on. No two people are alike. Therefore, each person must have their own unique financial persona and habits that help them become the people they need to be. For example, everyone has a risk appetite that evolves out of their needs and circumstances. The young can take risks, recover from losses, and make gains from the investment market.

The elderly have limited risk appetite since their life expectations are low. Understand what makes you tick. Examine your risk appetite and risk tolerance. Calculate the risks you need to take to achieve your goals. Remember that with investments, not taking a risk is also a great risk.


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Seek help : Teachers may provide us extra care and attention when we’re struggling with a subject. Similarly, financial decisions are often hard. Making them alone increases risks. These decisions are best made informed. The more information you have, the better you may understand your risks and rewards. Therefore, do not hesitate to reach out to people who could help you make these decisions. Financial planners can help you refine your plans, help you avoid obvious mistakes, and give you a greater chance of achieving your goals. One of the most commonly made mistakes is mixing investments with insurance. This leads to poor coverage, low returns, and lack of liquidity. Help yourself by taking expert advice on how to avoid such pitfalls. Just as in our formative years, we must run our own race as adults too. We may not get to our goals at the same time as our peers. We’re leading different lives with different challenges. We’ll need our own sweet time to achieve the things we want out of our money. Let your goals and information be your guide. Avoid comparing yourself with people.

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