How to Manage Money? Learn Top 7 Money Management Tips | ICICI Prulife (2024)

In Unit-linked plans, the investment risk in the investment portfolio is borne by the policyholder

Most people talk about earning more money, however, not many people talk about how to effectively manage it. While creating wealth is essential, it is equally important to protect your funds and use them prudently. Your hard-earned money needs to be saved, invested, and spent judiciously in a systematic manner in order to ensure long-term stability and liquidity. This can be done through effective money management.

An important aspect of money management is keeping a track of your expenses and reviewing them periodically. This helps you stay in control of your finances. It helps identify and reduce unnecessary expenses and spend on things that are necessary.

Here are some ways to manage your money wisely:

1. Create a budget:

Making a budget is the first and the most important step of money management. It is a fairly simple measure and has been used for centuries. In order to make a budget, estimate the amount of money you will ideally need to spend each month based on your income, lifestyle, and wants. Having such an estimate will help you gain more control over your finances, and accordingly organise your spending and savings. With a better control and awareness over your spending habits, you will be able to track and achieve your financial goals in an effective manner without compromising on your lifestyle.

2. Save first, spend later:

As a rule of thumb, it helps to first save some part of your monthly income and then start spending your money on regular essentials like groceries, rent, electricity, loan repayments, insurance premiums, etc. This ensures that you are prepared for a future contingency and eliminates the chances of overspending or exceeding your budget.

3. Set financial goals:

Having a financial goal allows you to stay focused and avoid overspending. So, plan what you want to do with your money in the short as well as long term. In order to achieve your long-term financial goals like your dream house, your child's education, retirement and much more you must start investing in financial products. Remember to always set realistic goals with set timelines. This will help you stay motivated and ensure that your money is well-spent.

4. Start investing early:

It is advisable to start saving money as early in life as you can. This gives you more time to grow your wealth, and get back higher returns in the longer run. Therefore, aim to start saving and investing from your first paycheck. ICICI Pru LifeTime Classic1 is an ideal wealth creation plan for long-term savings. This unit linked plan2 offers two major benefits – Financial protection to your loved ones in the form of a life cover^ as well as the opportunity to create significant funds for your financial goals. The plan offers 4 portfolio strategies, and you can choose any of these as per your goals and risk appetite. You can choose between equity, balance, and debt funds, and switch between these funds at any point in time, without any additional charges. In addition to this, the plan rewards you with loyalty additions3 and wealth boosters4 for staying invested for a longer period and paying all your premiums without any defaults. This considerably adds to your overall earnings. You can also choose to pay the premium monthly, half-yearly, yearly, or stick to a one-time payment. Lastly, you get tax benefits5 of up to ₹ 46,800/- on the premiums paid, under Section 80C of the Income Tax Act, 1961.

5. Avoid debt:

While taking loans to achieve your life goals is a common way, they do come with a fair share of problems. The high interest can eat into your savings. Taking on multiple loans also affects your credit score, thereby making it harder for you to avail credit when absolutely necessary or in some cases, even a job. So, try to limit your debt as much as possible. Being dependent on credit cards or taking on too much debt can hamper your budget and become a financial burden.

6. Save Early:

It is important that you start saving as early as possible. Let us understand this with an example.

Consider Mr. A who starts saving ₹ 10,000/- per month, from the age of 30 till the age of 60. This means, he saves ₹ 1,20,000/- per year. Let us compare this with Mr. B who starts saving double the amount, i.e. ₹ 2,40,000/- per year from the age of 45 till the age of 60.

Let us see how their saving turns out assuming the same rate of return.

Mr. AMr. B
Age at start of saving30 years45 years
Age at end of saving60 years60 years
Amount saved per year₹ 1,20,000/-₹ 2,40,000/-
Expected annual rate of return8%8%
Total amount saved over the years₹ 36,00,000/-₹ 36,00,000/-
Value of savings at the age of 60₹ 1,46,81,504/-₹ 70,37,828/-

Thus you can see how saving earlier has helped Mr. A gain ₹ 76,43,676/- more than Mr. B even though the amount saved by both is the same.

Simply put, the earlier you start saving, the more interest your savings will get over time. With the power of compounding, you get interest not only on your savings but also on the returns earned every year.

Thus, saving early helps to generate more money with the power of compounding over time.

7. Ensure protection against emergencies:

It is always advisable to stay financially prepared for any kind of uncertainties in life. These uncertainties can be in the form of a job loss, an accident or an unexpected health emergency. Being financially prepared can help you deal with such situations easily. Insurance plans like term insurance, health insurance and critical illness insurance can help you to secure yourself and your loved ones financially in case of an emergency.

COMP/DOC/Nov/2021/2611/6984

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How to Manage Money? Learn Top 7 Money Management Tips | ICICI Prulife (2024)

FAQs

How to Manage Money? Learn Top 7 Money Management Tips | ICICI Prulife? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

What is the 50 30 20 rule of money? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

How do I learn money management? ›

Here are seven to get you started.
  1. Track your spending to improve your finances. ...
  2. Create a realistic monthly budget. ...
  3. Build up your savings—even if it takes time. ...
  4. Pay your bills on time every month. ...
  5. Cut back on recurring charges. ...
  6. Save up cash to afford big purchases. ...
  7. Start an investment strategy.
Jun 27, 2023

What are the 3 basic steps in money management? ›

Understanding how to create a realistic budget, track your spending, and set attainable savings goals are essential steps in the process. It can be overwhelming to take on all these tasks at once, but when broken down into smaller steps, money management success is achievable.

How do I manage my money tips? ›

How to manage your money better
  1. Make a budget. According to the Capital One Mind Over Money study, people dealing with financial stress struggle more with budgeting. ...
  2. Track your spending. ...
  3. Save for retirement. ...
  4. Save for emergencies. ...
  5. Plan to pay off debt. ...
  6. Establish good credit habits. ...
  7. Monitor your credit.

How to budget $5000 a month? ›

Consider an individual who takes home $5,000 a month. Applying the 50/30/20 rule would give them a monthly budget of: 50% for mandatory expenses = $2,500. 20% to savings and debt repayment = $1,000.

How to budget $4000 a month? ›

making $4,000 a month using the 75 10 15 method. 75% goes towards your needs, so use $3,000 towards housing bills, transport, and groceries. 10% goes towards want. So $400 to spend on dining out, entertainment, and hobbies.

How to learn about money for beginners? ›

Talk to professionals, such as financial advisors, bankers, accountants, and attorneys. They are often happy to share their general knowledge with those just starting out, especially if you show a keen interest in learning more.

What is your biggest financial goal? ›

Long-Term Financial Goals. The biggest long-term financial goal for most people is saving enough money to retire. The common rule of thumb is that you should save 10% to 15% of every paycheck in a tax-advantaged retirement account like a 401(k) or 403(b), if you have access to one, or a traditional IRA or Roth IRA.

How much should I save each month? ›

How much should you save each month? For many people, the 50/30/20 rule is a great way to split up monthly income. This budgeting rule states that you should allocate 50 percent of your monthly income for essentials (such as housing, groceries and gas), 30 percent for wants and 20 percent for savings.

How to financially prepare for life? ›

Here's what you'll want to consider as part of your plan.
  1. Review your total income. ...
  2. Determine what kind of debt you have. ...
  3. Make a spending plan. ...
  4. Create security for later. ...
  5. Assess your risk management. ...
  6. Build an emergency fund. ...
  7. Save for college. ...
  8. Save for retirement.
Feb 13, 2023

What is the 20 rule for money? ›

Budget 20% for savings

In the 50/30/20 rule, the remaining 20% of your after-tax income should go toward your savings, which is used for heftier long-term goals. You can save for things you want or need, and you might use more than one savings account.

What is the 20 10 rule money? ›

The 20/10 rule follows the logic that no more than 20% of your annual net income should be spent on consumer debt and no more than 10% of your monthly net income should be used to pay debt repayments.

What is the number one rule of money management? ›

Rule 1: Plan Your Future. Rule 2: Set Financial Goals. Rule 3: Save Your Money. Rule 4: Know Your Financial Situation.

What is the 40 40 20 budget rule? ›

The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.

What is the disadvantage of the 50 30 20 rule? ›

It may not work for everyone. Depending on your income and expenses, the 50/30/20 rule may not be realistic for your individual financial situation. You may need to allocate a higher percentage to necessities or a lower percentage to wants in order to make ends meet. It doesn't account for irregular expenses.

What is one negative thing about the 50 30 20 rule of budgeting? ›

Some Experts Say the 50/30/20 Is Not a Good Rule at All. “This budget is restrictive and does not take into consideration your values, lifestyle and money goals. For example, 50% for needs is not enough for those in high-cost-of-living areas.

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