Some money rules that can have a great impact on your finances and on your future, if followed properly, are:-

1] Never take Loans for Depreciating Assets –

Consider before taking a loan or borrowing money for investing in a depreciating asset like car or mobile phone, other electronics items. Think twice before you choose this option. Avoid it further if it’s not an urgent need.

Such investments never add any value but only take away a huge chunk of your money. Borrowing money to pay for a depreciating asset is a sin of personal finance.

Always check does the debt have a direct and measurable positive impact on your future income? If the answer is yes, the debt may be worthwhile after careful assessment of risks. A crop loan taken while sowing looks up to a possible good harvest; an educational loan enables seeking a qualification that can offer better earnings, a home loan can reduce your current rental expenses and makes your emotionally more stable. These types of loans have a positive income effect and carry important social benefits.

2] Live below Your Means –

Living below your means requires you to pick and choose. You can have a life without draining your wallet, all it takes is some prioritizing. If you want to get on the quickest path to reaching your goals, you have to start living below your means. The best way to do that is to keep your priorities in line. Spending less than you earn leaves you with a surplus, and that surplus is the foundation on which long-term wealth is built.

Here is how you can do it –

1. Create a Financial Plan to know your goals and start saving first for them
2. Create a practical monthly budget and stick to it. Keep small rewards for small success
3. Avoid using Credit card. It is tough to track your expenses with it.
4. Increase your income. Try freelancing, blogging, online jobs to earn extra income.

It’s not about the amount of money you make; it’s about adjusting your habits and lifestyle in order to improve your life both now and in the future. Once you start making small changes to your spending routine or earnings, you will realize how big of an impact it can have on every aspect of your life.

3] Build your Emergency Fund –

The best way to save for unexpected financial shocks is to have an emergency fund. This is money you want to keep somewhere you can access quickly and easily.An emergency fund is a bigger, longer-term savings fund.

The earlier you start saving, the more time you have to build up the funds to cover an emergency and reach your goals. If you leave yourself with no cushion, only one unexpected expense can send you into debt. Emergency funds help us cope with financial challenges. These challenges may result from job loss, medical emergencies, or other unforeseen circumstances.

The size of a healthy emergency fund may vary based on personal debt levels and spending habits. Generally, one should save enough money to cover between three and six months worth of living expenses. Your emergency fund can shield you from relying on credit cards to fill in financial gaps.

4] Pay Yourself First or Savings First –

If there’s one primary lifestyle quality that marks those who have built wealth over time, this is it. Paying yourself first is a simple rule which can do wonders for your Financial Health. It simply means, first save and then spend. Treat savings like an electricity bill which needs to go without fail. Why? Because this approach increases the likelihood that you’ll actually save a substantial amount. It converts saving money from a “desire” into a necessity. Your retirement and your emergency fund savings become a bill that MUST be paid every month.

Automate your savings. Otherwise, you’ll get to the end of the month and realize you’ve spent more than you intended. So using your budget, figure out how much you can save each month. And then have the money directly deposited into your savings account and/or other retirement savings accounts.

SIPs are an excellent way to achieve this. Calculate the amount you want to save every month and create SIP of that amount in different Mutual Funds. Make sure your SIP hits immediately after your salary gets credited.

A happy and stress free retirement is the ultimate sign of a successful financial and retirement planning. There are a few mistakes that people make during retirement years. These mistakes should be identified and avoided. Some of them are listed below:-

1] Over Allocation to Fixed Deposits –

While financial security is a big focus on retirement, getting out of the market isn’t a safe bet either. People, because they focus on not losing money, forget the risk of outliving your money, inflation risk, credit risk, so they put themselves at risk in every category except losing money. Retirees put money in fixed deposits that earn a low rate of return.

Be realistic about how long your money will be invested. At age 65, your life expectancy is, on average, another 20 years, but if you make it to 85, then you’ve still got another 6-7 years of expenses left to cover. So, don’t worry about losing your money over the next six months, but instead ask yourself how you can make it last another 25-30 years. It may make sense for you to separate your assets into different pools, and invest a little aggressively.

The average FD returns below are pre-tax returns. These returns would go down after tax depending upon your tax slab.

2] Almost Zero Allocation to Equity Asset Class –

Many retirees’ are overly cautious because they don’t have a lot of money and are afraid of losing it. Without an appropriate level of exposure to equity, you will likely need to save far more money to reach your long-term goals, leaving less room in your budget for anything else you want to accomplish.

Holding a certain amount of equity could potentially boost returns for that level of risk.  Ideally, you should bring down the equity component of your investment to protect the corpus and reduce risk as you approach retirement. However, it is equally important to invest a certain portion in equity. If you are too much conservative, then it will lead to losing the value of your money.

3] Underestimating Inflation Impact –

When it comes to financial planning, people usually ignore two things- the current time value of money and how money loses its value over the time. While we are focusing on increasing income with time, it is also essential to pay attention to the rise in expenses and drop in the value of money because of overall annual increase in prices of common goods and services behind the same.

Ignore inflation rate and you will notice that your savings gradually erode away while your monetary plans go haywire. Inflation is one of the most critical factors that can disturb your retirement plans. It is essential to factor in inflation into your retirement planning program. Also, realistic projections of future inflation rates are critical to building a strong retirement corpus.

For example, if a person needs Rs. 30,000 for monthly expenses right now, and considering 7% inflation, then after 25 years that persons’ monthly expenses would reach around Rs 1,60,000.

4] Buying Retirement Plans from Insurance Companies –

Insurance companies were not designed to fund retirement or provide retirement plans. Insurance companies were never meant to be an investment vehicle, and it’s certainly not the best way for retirement planning. While insurance companies make it possible to fund your retirement, there are risks involved as well as huge fees to consider.

So if not a retirement plans from insurance companies, then what?

If one is in your 30’s or 40’s, and has more than 20 years to go for retirement, invest the retirement investments into a mix of asset classes, that is equity, debt and maybe gold.

If one is nearing retirement, i.e. one is already in 50’s and have less than 10 years to retire, invest up to majorly into debt such as debt mutual funds and high yielding but safe corporate bonds, keep small portion into equity to make the portfolio a little aggressive, and the remaining maybe in gold.

5] Depending on Children for Retirement Needs –

No matter how well you think you know your children, money can make them unrecognizable in an instant. For that reason, it’s never safe to assume your children will be the same generous, giving types that they are today.

Your children may be unable to support you even if they want to. Handling your finances allows more privacy. You don’t want to be a burden to your children. You know your retirement needs better than your own children.

Ways of handling and approach towards finances changes with age. In 40’s, following money mistakes should be avoided:-

1] Buying more number of Homes than You can Afford –

When your income finally feels stable and strong for the first time in your life, it’s tempting to upgrade your lifestyle. Many people choose to do that in the form of new houses, often signing up for a big fat loan along the way. This is a big mistake.

Avoid expensive homes until you’re at a financially secure point where you don’t have other debts you’re facing and can easily handle the extra expense even if you were to lose your job, is advisable. Many people don’t realize the true cost of homeownership and find themselves in financial trouble after they’ve taken that step.

It’s tempting to opt for more square footage, a larger garden, and a developed neighborhood. But this means a bigger home loan, increased maintenance costs, and high property taxes. Houses aren’t great investments, so you should be realistic about your budget and avoid tying up all your savings in your home.

Here are few reasons why Real Estate is not a great investment option –

• Difficult to sell when the need arise
• Very low rental yield (3-4% max)
• Low liquidity
• A litigious asset class
• Difficult to track the value
• Difficult to manage

2] Overspending on Your Kids –

Parents tend to overspend on expensive cribs, bottles, clothes, and nursery accessories. You want to raise your child in a comfortable environment, but there are bound to be unexpected costs to arise.

Its hard to say no to everything your kids’ desires and you really do want to provide those things — not just because you love your kids, but because their friends’ parents are your friends and neighbors, and there’s pressure for you to fit in. Sometimes peer pressure and keeping up to social standards are the main reasons for overspending on kids.

For example, deciding a certain budget for your child’s birthday gift but buying gift almost double the budget just because your child asked for it and you could not say no or could not explain the reason for not buying the gift. This could lead to become a habit, not just in terms of gifts but in general spending patterns, which will have sever effects on your finances in the long term.

This is a good time to reassess your money values and teach your kids about creating their own value system. That way, the whole family is spending money and time on what really matters to each of you.

3] Not Saving for Your Retirement –

After decades of working hard, you’ll be ready to retire. If you’re in your 40s, then you should probably start saving for retirement.

This is actually a great idea because the earlier you start saving for retirement, the more money you’ll earn on your deposits due to compound interest on your savings. Another great option is to invest your saved money in instruments that suits you and gives you desired interests.

If a 40 year old is planning to retire at 60 and is expecting Rs. 50k/month (today’s cost) expenses every month after retirement – then he/she will need approx. Rs. 5.5 Crore corpus at the age of retirement!

4] Not having a big Emergency Fund –

Emergencies can strike any time. With an emergency fund in place you will be financially better prepared to face such situations. Although, there is no thumb rule, a sum equivalent to 6-12 months of expenses should be kept in the emergency fund. The fact is that emergencies really do happen, even if you don’t own much and you’re healthy.

As your family and commitments grow, so does your need to plan for unexpected emergencies. You have increased responsibilities and your emergency fund should reflect that. Adjust the size of the fund corpus and plan to have about six month’s worth of living expenses, including loan payments, put away in a safe place that you won’t be tempted to take back from.

5] Not Writing a Will or Doing Estate Planning –

People have to lunge through their parents’ estates while grieving their loss. It’s essential to create a plan for supporting your family, if you pass away or are injured and can no longer work.

Doing the work now will spare your spouse and children a lot of pain. Work with an estate attorney to create a will, and consider the best ways to leave money to your heirs or charitable organizations. It’s important for both spouses to be active participants in their family’s financial planning.

Some reasons why writing a will and estate planning is important –

• Avoiding Conflicts & Fights
• Protecting the Beneficiaries
• Reducing Estate Taxes
• Protecting Assets from unexpected Creditors

Your 40’s can be a wonderful time of life when your family grows, alongside your income, travel, household items and future possibilities. By making sure you avoid these common money mistakes, you’ll quickly take charge of your finances and still have plenty of time to achieve your financial goals.

Handling your money in a proper way, right from the start is very crucial. Some money mistakes that should definitely be avoided by the people in their 30’s are as follows:-

1] Not Saving as Aggressively as you can –

Methods like save at least 20% of your income, or contribute enough to your PF’s to get an employer match, is just a starting point. You should aim to save more aggressively as your income increases.

You should contribute maximum into your PF’s (up to maximum limit allowed). Taking advantage of pre-tax retirement accounts is essential in your 30s and beyond, as it allows you to lower your taxable income and hold onto more of your money.

2] Not Protecting yourself with Disability & Life Insurance –

If you have a family and dependents, you need to think beyond your savings and get life and disability insurance to give protection if something happens to you. One should put in time to research insurance plans, or talk to a trusted adviser.

One type of insurance that gets neglected more so than others is long-term disability insurance and not having it can be extremely risky. Disability insurance is meant to provide income in case you get disabled and are unable to work, which is more likely to happen than many of us may think. Disability insurance will help keep you financially afloat if you’re sick or injured and can’t work for a time. Life insurance will provide much-needed money to your spouse or dependents in case of eventuality. You may get disability and life insurance through your employer, but if not, you can purchase individual policies.

3] Having Kids Without Preparing for Expense –

If you are planning for kids in the next few years, begin preparing financially today.

The cost of child care can come as a shock. And as your kids grow, they’ll be involved in after-school activities, go on field trips. You might need to buy a bigger home or a home in a better school area (which often results in higher loans or costs).

The decision to have a kid, or have more kids, is as much an emotional choice as it is a financial one. But kids completely change your financial picture and priorities in ways you can never predict before you have them. You should always be prepared.

4] Not Discussing Finances with Your Spouse –

Too many couples avoid talking about money until they absolutely have to. It’s not a fun or easy conversation to have, but discussing your financial plan, personal finances and spending patterns with your spouse is important. Couples often have this conversation too late in the relationship (or not at all). The conversation must happen, and the earlier the better.

Sharing information and control of your finances with each other builds a lot of trust and helps uncover any trouble spots. Finding a way to deal with spending or budgeting issues together may be a bit uncomfortable at first, but it’s essential to a harmonious and honest relationship. It’s important for your partner to be aware of your savings, income, debts, and investments, and how you plan to pay for these things while contributing to your shared household and goals.

5] Not being Thoughtful about Your Career –

30’s isn’t the time to get complacent in your career. Keep learning new skills, keep looking for growth opportunities, and if your current job offers neither of those things, find a new job yesterday. Switching jobs is a great opportunity to negotiate a significantly higher salary for significantly more responsibilities.

As you weigh job offers, look at the benefits companies offer as well. Benefits like health insurance, disability insurance, life insurance, and PF matches make up a large part of your overall compensation. Consider work-life balance and travelling distance, too.

Young earners should take on the following tips in order to take better control of money and their finances:-

1] Make a Budget & Start Saving –

Budgeting is a simple task of comparing the income with the expenses, and this must be your initial step. Make a note of your monthly expenses. The objective is to find out how much you spend under different heads. Tracking of budget is important not only to identify mandatory and optional spends, but also ensure that you don’t overspend.

Once you’ve identified the outgoing amount, put away 20-30% of your salary every month before you start spending. If you don’t know where to put it, start with your bank account. This will help inculcate a lifelong saving habit and make sure that you money starts to work for you immediately.

2] Define your Financial Goals –

Now, you’ve started saving, but will it be enough to reach your goals. People have a tendency to save aggressively and then invest with extreme drive, but they do so blindly, harming their financial goals. It is a mistake which is common to most investors, regardless of the age group. Make sure to define your financial goals and make way for achieving them.

Don’t just make a mental note of the things you want to finance, but write these down in detail. Split your goals into three categories: short-, medium- and long-term goals. Then list each one clearly, along with the number of years to achieve each, and the exact amount you will need. Once you have written down your goals, you will be able to determine how much and for how long you will need to invest.

3] Take a Term Insurance Plan –

There are several types of insurances in the market. Term Insurance Plans are such insurance products. Term insurance policies offer guarantee returns to the policyholder at the time of maturity. So, assess your needs before you choose the right insurance policy.

4] Maximise your Tax Savings through Salary Re-structuring –

Tax savings is not the main concern for most of the new earners as their salaries may not be too high, nor their knowledge with respect to taxability of various instruments. It is advisable not be obsessive with investing for the purpose of saving tax.

You can save tax by negotiating with your employer for a tax friendly salary structure. The basic, probably the chunk of your salary, includes basic pay, HRA and often dearness allowance (DA) and special allowance. Apart from HRA, every component is fully taxable. An easy way to reduce tax liability is to cut basic pay and adjust it as perks or long-term benefits. If you have a special allowance component, adjust it as a tax-free component.

5] Build an Emergency Fund –

The new earners typically forget the preparation for financial emergencies. Be it the sudden loss of job, medical emergency or sudden financial support required by a family member, you will need to be ready for contingencies. So the first thing to do, even before you start saving for smaller, short-term goals, is to build an emergency corpus. The best and the easiest way of achieving this is by automatically divert some portion of the earnings into a bank savings account.

Emergency fund should be equal to 3-6 months of your household expenses, and should also include any loan repayments and insurance premium obligations. This amount should be invested in such an instrument that it is easily accessible and is not subject to market fluctuations.

6] Avoid taking Personal Loan –

Given the ease of securing a personal loan with pre-approved amounts, it is easy to give in to the urge. Know that personal loan is one of the most expensive forms of loan after credit cards and charges very high interest. Avoid these at all cost.