So, you have thought that earning a good salary is all? How do you make use of it is more important than how much salary you actually earn.

Your long term success in personal finance will be measured by how much you have been able to save in the end.

To keep a reasonable balance between what you earn and what you save, you need a budget.

As experts are of the opinion that financial success of any individual at any given point of time is the function of three combined efforts:

Your ability to put a ceiling on your day-to-day finances without obstructing the ways of living a satisfactory and comfortable life.

Working out a personal finance plan with an eye on the future such as procuring a house, retiring comfortably or fulfilling certain dreams like making a world tour, etc.

Contributing to an emergency fund for making a financial safety net to prevent financial disasters followed by any personal tragedies.

Now the first and foremost of these three financial efforts is learning to keep day-to-day expenditure within a fixed limit. In other words if you want to have a healthy personal finance, you have to learn to make a budget and strictly adhere to it.

No matter how many thousands of dollars you bring home on every payday, only a well chalked out budget can carve out a comfortable future for you. On the other hand, a person with a frugal income can live a satisfactory life if he handles all the resources at his disposal with discretion. This old adage is worth mentioning: “choose your coat according to the clothes you wear”. Learn a lesson from it and you will always remain miles ahead from your financial goals.

Now the question is, how can you define a budget? A budget is a kind of financial tool in the form of a written plan that includes particular goals and the ways to measure the rate of success for achieving that goal. We often make the mistake of viewing budgets from a negative point of view, as something that’s putting a restraint on our monetary powers. On the contrary, a budget enhances the power of your money to work for you when you need it most.

How can you get started in making a budget to improve your personal financial health? First of all, take the trouble of downloading a budget worksheet from the internet. You will find many of them in most of the websites dealing with personal finances. In the worksheets, you will find the separate categories for income and expenditures. Consult the expenditures of the previous few months and add or delete categories to suit your personal budget worksheet. When making entries for the expenditures also take into consideration your hobbies; there is no point in depriving yourself of the little pleasures of life. What you need to do is keep the expenditure to the lowest minimum level possible.

Similarly, when you are making entries for income, add all the components of your gross salary and also do not forget to add to it the interest income, dividends, bonuses or incomes from other miscellaneous sources.

Now just try to calculate, which expenditures you cannot do without and which ones you can let go of. If you analyze neutrally, you will be amazed to find how much money you have just thrown away.

When you are left with a substantial amount of net income (the difference between the gross income and gross expenditure) do not make the mistake of leaving it entirely with your checking account. They tend to get exhausted unnecessarily. Transfer most of it to an account which cannot be liquidated on a whim.

 

Personal Finance Tips on Investment

Unlike our ancestors and even our previous generation, we, the present generation of professionals; are living through the most peaceful phase of the human history.

Barring the threats of terrorism from time-to-time, there is no indication of a major war in the horizon and the reflection of this politically peaceful time gets reflected in the global economy which is presently bustling with activities.

As an outcome of a flourishing economy, a wider spectrum of investment avenues are thrown open for the common people.

Today the investors are rather spoiled in their choices. You can opt for these multiple investment schemes like stocks, bonds, mutual funds, savings bonds, etc.

In addition to these common types of investment tools, you can also make safe investments in real estate investment trusts (REITs) or variable annuities.

But before making an investment, you should be well aware of the fact that no investment is free of some level of risk.

The key to making a successful investment is the ability to understand the extent of risk factors associated with particular kinds of investment tools.

Here are some tips to help you make a more intelligent move with regards toward personal investment.

Don’t Believe in the Hype

The first step toward making an intelligent investment move is to learn about the product.

Sometimes, you will find great hypes surrounding a certain financial product. Never trust these hypes to be true; these are the parts of an intelligent marketing mechanism.

Do your own research and try to understand the pros and cons of the product.

It is your money, so take an informed decision on the basis of your judgment and intuition, don’t go by the tall claims of the sales persons who are trained in glorifying the products they sell.

Go for Diversification

Do not get over obsessed with a particular sector while making your investment. Different sectors fare differently under the diverse performance of the economy.

So some of your investments will keep on reaping benefits at certain circumstances, while the others may not do well in the similar situation.

This is why you need to diversify your investments.

As for example, you get a higher interest rate on your savings deposited in banks, while your bond prices might be going through a phase of depreciation.

Thus from one investment you may get lower return, but from another sector you will get a better return. This diversification also helps to reduce your risk.

Tax Saving Investment

Try to put your money in the products that offers you a reasonably good tax exemption. As for example, Municipal bonds are exempt from federal income tax and in some states they are exempt from state income tax too.

Then, you will be able to make tax-deferred investments in your retirement fund. If you choose to invest in U.S. Savings Bonds you will get an exemption from state and local taxes.

Return and Exit Policy

Make sure of the exit policy of the investment and also ask how quickly you will get your money back?

You can sell the stocks or bonds any time, but there is no surety that you will get back the amount you have paid.

Your earning from the investments mostly varies with the economic fluctuations, though you get a fixed return from the bonds.

And, do not get baffled by the past performances of any financial product. Take decision by keeping any eye on the present market scenario.