Guide to Personal Finance

Financial Planning

Guide to Personal Finance

By Jupiter Team · · 7 min read

Finance is an important aspect of your life and managing it is not a simple task. For efficient financial management, you need to consider multiple aspects like budgeting, saving, investing, and determining future goals.

Here is a handy guide to help you learn more about managing your finances to maximize benefits.

What Is Personal Finance?

Simply put, personal finance means maintaining your money throughout your life. It includes understanding factors things like daily expenses, how you use your cards, and how interest rates affect your portfolio.

Personal finance comprises various aspects, such as budgeting, spending, saving, managing cash flows, and maximizing returns through investing. Financial planning relies on your income, living expenses, and your goals and the decisions you make to meet them.

Personal Finance Examples

Some real-life examples are as follows:

  • Learning to create a budget
  • Planning with your family on dividing the total income among various expenses like loan repayments, children’s education, and much more
  • Retirement planning
  • Purchasing insurance policies
  • Investing and tax planning

Important Personal Finance Terms


This is a crucial aspect of financial planning and records your income and spending habits. You can identify how your money is being spent, how you are managing your expenses, and if there is any scope of cutting costs and increasing your savings.


Financial planning entails savings to ensure stability during your lifetime. Therefore, you need to know how to save and where to invest to achieve various future goals like children’s higher education and your retirement.


Different types of insurance like life policies, health plans, and car insurance are part of your financial plan. They protect you and your family against unforeseen events, ensuring your financial stability while dealing with these situations.

Importance of Personal Finance

Proper personal financial planning can secure your future and allow you to live a stress-free life. Here are three benefits that make financial planning important.

Gives an insight into your financial condition

Budgeting ensures you know how much you earn and where you spend your money. This helps you evaluate your situation and assess your financial health.

It also makes you identify ways in which you can reduce your expenditure and increase savings, which can be invested to build wealth over the long term.

Helps you stay focused and disciplined

Realizing your financial goals and building wealth gradually requires focus and discipline. Saving some amount every month and investing it through systematic investment plans (SIPs) helps inculcate financial discipline.

Gain control over your finances

Being aware of how you are spending your money allows you to gain control over your finances. You must responsibly use your credit cards, repay your loans, and improve your credit score.

With sufficient control over your money, you can plan better and enjoy long-term benefits and financial stability.

Principles Behind Financial Planning

When you consider personal finance management, you may think about saving more to build more wealth. However, here are three important principles that can help you achieve success in financial planning.


By examining your finances, you can determine your priorities and make focused efforts to reduce unnecessary expenses. This ensures you have a huge investible surplus to build wealth over the long term.


You must resist spreading your finances too widely to stay focused. Finding an additional source of income by a side business or putting money in the right investment products and regularly assessing the risk-return ratio is important.


Cash flow management is crucial to financial planning. Ensuring you are not spending too much of your income on unnecessary things can help you save more, thus increasing your investible surplus.

Aspects of Personal Finance


There can be a sudden need for money anytime, and a liquidity crunch can be avoided if you have adequate savings to handle such unforeseen situations. Having an emergency fund that covers between three and six months of your expenses is advisable.

Investing this amount in liquid funds can help you earn slightly more than the savings bank account interest while providing flexibility and minimal risks.

Cash flow management

This involves everything all about the cash inflows and outflows and getting control on managing the cash flows is crucial for financial planning. You must create a budget and list down where you are spending your money to understand if you are overspending or are falling into a debt trap.

This does not indicate that you do not spend any money at all. Cash flow control means reviewing your spending habits to differentiate between necessary and unnecessary expenses.

Ensuring you are living within your income is important to build a strong financial base. Moreover, being aware of how your money is spent can help you make informed financial decisions.

Long-term investments

Planning for the future is a crucial aspect of financial management. Saving money for emergencies and for meeting long-term goals like retirement and children's higher education is important.

However, to achieve these objectives, savings are not enough. You need to invest to let your savings grow over the years. You may put money in different products like stocks, mutual funds, fixed-income securities, pension plans, and much more.

You may choose the right investment product based on your risk appetite, investment horizon, and financial goals.

Tax planning

An often-overlooked aspect is tax planning; you will be surprised to know there are multiple ways in which you can reduce your tax liability and have a higher investible surplus.

You can take advantage of around 70 deductions and exemptions to reduce your taxable income. The largest tax savings are available under section 80C of the Income Tax Act, 1961 wherein you can deduct up to INR 1.50 lakhs per year by investing in various instruments.

Financial protection

You may have several dreams for you and your loved ones, and you may invest in different plans to fulfill these. However, protecting against any unforeseen event is crucial to ensure your investments do not become a liability.

While there are more than 40 types of insurance plans available, four important policies that every individual must have include life insurance, health and critical illness plan, mortgage protection insurance, and personal accident policy.


These are beneficial investments and offer fixed payments that can be used as a future income source. Based on your needs, it could be in the form of pension payments, and in some instances, you may need to make regular investments to earn income in the long term.

Fixed annuities offer regular payments and deferred annuities provide cash flows in the future based on the performance of the investments made during the accumulation stage.

Retirement planning

Retirement is an important life stage and if you have planned it well, it can be blissful. You need to invest while you are earning and build a corpus that can provide regular income after your retirement.

Start investing early and choose the right products to benefit from the power of compounding and build a huge corpus.

Estate planning

Estate planning includes the disposition of your assets in your absence. You should consult your family members and take into account your preference while planning how your assets will be disposed of after your passing.

Estate planning must be done in advance as there may be some tax implications.


Your personal savings may not be enough, and you may have taken a home or car loan to buy your house or vehicle. By availing of finance, you can fulfill your dreams and repay the money over the years.

You may take a loan or two but do not forget to manage your liabilities to avoid a debt trap. Moreover, safeguard yourself with an investment account to ensure the loans do not become a burden in the future.

Financial Planning Process

Financial planning is an elaborate process and requires discipline, patience, and focus. Here is the step-wise financial planning process:

Goal setting

Determine your financial goals by differentiating between needs and wants. List down achievable objectives along with timelines and check these against your total investments and savings. Further, consider your liabilities and lifestyle while setting your goals and classify these into short, medium, and long term.

Data gathering

Gather information about your various investments and savings and compare it with your financial goals. An important thing to remember while looking at your investments is the associated risks. Also, collate information about your credit rating and score, property documents, bank statements, and much more to assess your situation.

Data analysis

Detailed analysis of your information gives you an insight into your investment decisions. If there are any incorrect investments, you may rectify them. It will also help you identify your debt situation and repay old liabilities.

You must assess your present situation and align your future decisions with your financial objectives.

Developing a financial plan

During the personal investment planning process, consider your past decisions and then create a budget to meet your future objectives. Make sure your plans and budgets are realistic and do not forget to include some buffer to take care of unexpected situations.

Identifying alternatives

You may use online tools like financial planners and investment calculators to help you during the process. Download apps that track your expenses, search for the top-performing investments, and other alternatives.

Also, identify other income sources to supplement your present earnings. Gradually increase your savings and investments and diversify your portfolio to mitigate the risks. Regularly monitor your portfolio to identify non-performing assets and make necessary changes.

Revising the overall plan

Regularly reviewing and revising the financial plan is important to stay on track. Adjusting the plan to meet your objectives at different life stages is crucial for its success. Do not overlook this important step and review and revise the plan as necessary.

Financial Planning Tips

Financial planning is not easy and requires effort and discipline. Consistency is crucial for its success and here are some tips to help you in your efforts.

  • Start early to benefit from the power of compounding that helps build a sizeable corpus over the long term.
  • Make a realistic budget and stick to it to ensure you live within your income.
  • Save regularly and invest in different asset classes to diversify your portfolio and mitigate investment risks.
  • Build a five-year plan that includes your income and expenses (including unexpected expenditure), and then determine how much you need to save and invest.
  • Emergencies come without warning and having some money kept aside to deal with such situations is critical.

Being in control of your finances and making life choices without worrying about money can be tough. Remember the basic principles of finance—risk-return, time value of money, cash flows, market prices, and unforeseen future—to build your financial plan and save for the future.

Effective financial management means maintaining records, planning, controlling, organizing, and monitoring your resources to achieve your goals.

Personal finance encompasses multiple aspects and if you are overwhelmed by this process, you may seek expert advice from experienced professionals.

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