How to be prudent with money

Money management, in a nutshell, is about savings, using it to protect oneself against life's vagaries, and growing money

Hyderabad: For many, money management is a difficult aspect. However, like other skills, this can also be learned. Also, now there are many tools that are available online to help you. In this game, the results are proportionate to how early one starts.

Money management, in a nutshell, is about savings, using it to protect oneself against life’s vagaries, and growing money. Also, it is important to enjoy the money as well.

“In India, the biggest aspirations are home ownership, educating children, and being healthy,” says Adhil Shetty, CEO of Bankbazaar.com. He and team member AR Hemant authored ‘The Bee, The Bettle and The Money Bug’. While it won’t tell you how to become rich in a year, it talks about the minimum one has to do with the money. It will structure your finances and help you understand goal-setting, risks and rewards and mistakes to avoid.

Many fail to achieve their aspirations. Why?

“Indians are overdependent on bank deposits and gold. We are severely underinsured and thus at risk. There is low awareness of risks and rewards in the financial markets. Many Indians are just one crisis away from poverty. Our low financial literacy rate too is a contributor to low-quality financial decisions,” says Shetty.

Why the book?

“Today, there is too much noise, confusing marketing, bad ideas, and calls for customers to take undue risks. So, we have put together a commonsense money management plan that works. Readers get to know the ground realities,” he tells.

What can be done?

“We need to learn to walk before we learn to fly. It is easy for a financially literate person to make that leap. But everyone else—particularly young people—require help. The key lies in knowing the hierarchy of financial needs. This pyramid is not the same for all. Make one such pyramid and keep building higher layers,” he says.

Whether it is at the country level or at the family level, management of resources is important. “For most Indian families, money is a meagre resource. Managing it well will unlock upward social mobility. But that cannot precede financial literacy. It must happen first and must happen now,” he said. For this to happen, one should quit some old habits and also build new habits.

Money matters

• Aim to save 10-30% of income before spending. Under the power of compounding

• Create an emergency fund three to six times the current monthly income

• Understand that interest income is taxed

• Split savings in bank, deposits or liquid funds for better returns and lower taxation

• Create a monthly budget, automate bill payments on net banking or a payment app

• Buy term insurance. Aim for cover that is 10-20 times the annual income

• Aim for a health cover that is at least 50% of annual income. Boost coverage with super top-up or a critical illness cover

• Buy third party insurance for vehicles and home insurance

• Pay credit card bills in full and EMIs on time. Use reward points to cut down expenses