How to manage personal finances – This is often one of the most thought but seldom actioned aspects in a household. Even finance graduates and accountants who keep a strict vigil over even a rupee spent in the company are often lax when it comes to keeping the personal finances in order

Sure – I know – spend less, save more – that sums it up right?

Actually NO.

While saving is a good thing, it is not everything. So, let’s discuss the correct approach.

How to manage personal finances – why to manage at all?

This question is there because the world is full of people who did not do this and then landed in trouble in the latter part of their life. Even people like Sushil Kumar who won 5Cr in ‘Kaun Banega Crorepati’ land in trouble when they are unable to manage their finances properly.

Hence, there would be little chance for people who don’t have so much money to make do with. So we should always have a plan in place so that we don’t stray too far from what we expect to live like in the future.

So let’s discuss the steps that are required for you to prepare your financial plan

Step 1: List your goals and prioritize them

The foremost step in any plan is to have a goal. Hence even for personal financial plan goals are required. Goals come from aspirations which can be categorized as:

Needs, Wants, and Desires.

Needs are basic requirements to lead a life – Food, clothes, shelter, transportation, etc.

Wants are 1 step higher on the luxury ladder than needs. When the need gets fulfilled, ‘wants’ satisfy an innate requirement of luxury. Example – transportation to the office via some mode is a need; buying a car would be a want.

Desire is another step higher than want. Continuing the above example – desire would be to buy a Ferrari. Generally, desire is something that is not genuinely attainable immediately.

Another important classification of goals is on time horizon :

Short term: Goals that typically need to be fulfilled within a year – Example can be buying clothes, going for a holiday, etc.

Medium-term: Goals that typically need to be fulfilled within 5 years – Example can be buying a car

Long term goals: These are longer-term duration goals – Buying a house, Children’s higher education, retirement planning, etc.

Once you have listed down all the goals you need to prioritize them. This is important because this will define what you spend your income on. Generally, if you can define – needs, wants, and desires – A common rule of thumb would be to prioritize needs over wants and wants over desires.

Step 2: Estimate the money required to fulfill the goals

Everyone knows this because it is so obvious – There is a sum that is required to fulfill my aspiration. However, there are 3 major errors that people make in coming up with numbers

  1. People who don’t put pen to paper – generally underestimate the number of goals that they want to save for – People might think of the very large goals like buying a house, retirement, etc. however they miss out on the smaller and more frequent expenses – like buying a car, holidays, children’s education (yes now good education in India also costs an arm and a leg)
  2. If not properly planned, the degree by which the estimate is off is generally directly proportional to the time duration after which the money is needed. This is because people generally underestimate inflation effects.
    At a 5% inflation – 1L per month spends would be 4.3L spend 30 years down the line. While inflation can go up or down this will give a general idea of how much things can change if the time gap is large.
  3. Even for goals that are taken into consideration (especially retirement)- people might not correctly calculate the amount of money that is required to maintain a lifestyle. People might take a general average which might be way off from the amount required to maintain the lifestyle they want for themselves. They may also not impact certain lifestyle diseases etc which might happen

Hence it is important to put a good deal of thought and research into what kind of lifestyle you want and how much money would be reasonable to provide you that kind of life. Thereafter, it is a good practice to take some buffer on it (for unseen situations) if feasible without making any large scale sacrifices in the present.

Step 3: Plan your expense budget and investment strategy

After you have arrived at the goals that you want to achieve in life and the amount required for those goals you need to then look at the current income and expense calculations. Let’s say you earn 1Lac per month and spend 50,000 per month. Then you have 50,000 per month to save.

Now its time to divide the 50,000 into various buckets which will fuel the various goals. Important factors to keep in mind while doing this are:

  1. Always keep money aside for insurance (Life, health, general) and in an emergency fund. This is very important because while it may seem like a waste of money when nothing bad is happening, a whole life’s worth of planning and saving may become undone if something bad does happen. It is always better to be safe than sorry
  2. Keep in mind the time horizon when the money is required – Longer duration can allow for some strategies which shorter duration won’t. There are many aspects to keep in mind when choosing the right investment strategy which can be found here.
  3. After considering the investment options according to the linked article and also keeping the above points in mind – it may happen that the amount is not sufficient to fulfill all goals. Here, prioritization will kick in. Now prioritization will be 2 types
    1. Whether that goal itself is important or not – Redirecting that money towards fulfilling other more important goals
    2. Whether that goal can be deferred into the future – Even deferring some goals can be a good option as you can get interest income on the money not spent. To decide on which spends are worth it do go over this article.
  4. Hopefully, after the prioritization – the plan would be complete and you would know what goals are you saving for and how much exactly needs to be saved. All you need is now the last step

Step 4: Execution: Saving, Investing & Recalibration

This is one of the most crucial steps in the entire exercise. Without this just asking how to manage personal finances and making plans would do no good. It would just increase stress.

One needs to be very disciplined to follow the plan as detailed in the previous steps. Apart from long term planning, it is also important to learn how to manage personal finances in everyday life – keeping monthly expenses low (not stifling your present wishes totally) can have a huge impact on goal achievement.

One tip which would help in following this is to be a little easy while computing the monthly savings number above – If you take a very high savings number and then make the plan, then any deviation will require recalibration. However, if you are a little easy, you can always save more and then maybe do some discretionary spending when required.

However, even after being disciplined, and having buffers, there might be situations that can arise and disrupt the plan (Stock market crash, CoVid – (how to manage personal finances when out of a job because of a pandemic?), Lower returns than expected, etc. to name a few). In such cases, it is required to again recalibrate the plan and try to do prioritization to find out if we can live without some goals so that the most important ones remain funded.

Apart from the big changes, there might be some smaller changes that keep happening around us which can change the assumptions that we used to make the plan. While these may seem small, they may have a large impact on goals down the line. For example: if we assumed 5% inflation but it has been 6% consistently – it may change the retirement corpus requirement by a significant amount.

This is why is it always imperative to keep an eye on how the portfolio is shaping up and what changes are happening in the assumptions and keep adjusting the model. In case small adjustments make a cumulative large impact – it may be a good idea to try and save more but if it is still not enough then it may be required to reprioritize some goals.

Please do make sure that the savings are not done at the expense of insurance. That would not be termed as savings but as increasing risk.


Financial planning is very important for every family/ individual. While we have seen many people go on with their lives on autopilot without any plans – there are many instances where this approach backfires. There can be 2 types of problems:

Some people go about their lives living in misery, not spending money on their wants (even needs) and then have a lot of money and a life full of regrets at the end.

Others go about enjoying their lives, only to become dependent on others in the latter part of the lives or have to live in abject poverty, reminiscing and cursing the outlandish spending patterns of their past.

Don’t know which situation is worse – in either case, there is a period of life where optimum satisfaction is not achieved.

Hence, everyone should do personal financial planning to achieve the peace of mind and the optimum quality of life (balanced over the entire lifespan) it helps provide.

What are your best practices on how to manage personal finances? Do let me know in the comments if I missed something or if there is something that you would like me to cover in the coming articles.

Categories: Personal Finance

Ravi Maheshwari

Ravi is an IIM ranker with over 9 years of work experience and has helped optimize the financial performance of companies like BPCL, Sun, Ola, Swiggy, and Curefit. In this blog, he explains how to improve personal finance and also gives insights into financial models of companies.


Kathy · April 21, 2021 at 07:27

This piece of writing gives clear idea in support of the new people of blogging, that
in fact how to do blogging.

Denese · April 23, 2021 at 03:07

Please let me know if you’re looking for a writer for your weblog.

You have some really good posts and I think I would be a
good asset. If you ever want to take some of the load off, I’d
absolutely love to write some articles for your blog
in exchange for a link back to mine. Please send me an email if
interested. Regards! · April 23, 2021 at 22:09

Very great post. I simply stumbled upon your blog and wished
to say that I have really enjoyed browsing your blog posts.
After all I will be subscribing to your rss feed and
I am hoping you write once more very soon!

Nell · April 27, 2021 at 06:09

I was suggested this web site by way of my cousin. I
am no longer sure whether this submit is written by him
as nobody else know such distinctive about my difficulty.

You’re amazing! Thanks!;area=forumprofile;u=158480 · April 28, 2021 at 01:23

I am not ѕure where yօu aree getting ypur info, but great topic.

I needs to spend some time learning more or undeгstanding more.
Thanks for excellent informwtion I wаs looking for tһis info
for my missiоn.

judi bola · April 28, 2021 at 03:35

Incrеdible! Тhis bⅼog looks jᥙѕt like my old one!
It’s оn a completely different subject but it has pretty much the same page laʏօut and design. Great chߋoice off colors!

Effie · April 28, 2021 at 16:36

I’m not that much of a online reader to be honest but your
sites really nice, keep it up! I’ll go ahead and bookmark your
site to come back later. Many thanks

judi slot online indonesia · April 29, 2021 at 21:07

Everything is very open with a very clear
clarification of the issues. It was really informative.
Your website is very useful. Many thanks for sharing!

Eulalia · May 1, 2021 at 04:45

Does your blog have a contact page? I’m having a tough time locating it but, I’d
like to shoot you an email. I’ve got some ideas for your blog you might be interested in hearing.

Either way, great website and I look forward to seeing it expand over time.

pragmatic play · May 2, 2021 at 18:51

Hello, Neɑt post. There’s a problem together with your site in web еxplorer,
could check this? IE still is the marketplace leader andd a good pоrtion of people wiill miss yyour
ɡreat wгіting because of tһis problem.

info lengkap · May 3, 2021 at 00:05

Heⅼlo, I wish for to subѕcribe for thi webpage to get latest updatеs, therefore where can i do it
plеase ɑssist.

Corrine · May 4, 2021 at 07:12

Hi, yes this piece of writing is actually good and I have learned
lot of things from it regarding blogging. thanks.

situs judi slot online · May 5, 2021 at 11:43

Very soon this web site will be famous amid all blogging and site-building
visitors, due to it’s nice articles

Tomas · May 6, 2021 at 01:29

Wonderful website. Plenty of helpful info here. I am sending it to some friends
ans additionally sharing in delicious. And naturally, thank you for your

n사계정팝니다 · May 6, 2021 at 09:22

I’m curious to find out what blog system you are using? I’m having some small security
problems with my latest blog and I’d like to find something more safe.
Do you have any suggestions?

agen slot joker123 · May 6, 2021 at 12:42

Pretty! This has been an extremely wonderful post. Many thanks for supplying these details.

Caleb · May 7, 2021 at 12:53

It’s not my first time to pay a visit this web site, i am visiting this web site dailly and get nice
data from here daily.

Penny · May 7, 2021 at 15:55

Betting can be of many types, with each type requiring its
own legal arrangement. In Nevada, for example,
there is what is known as a”lawsuit” A suit is an agreement or a contract
between a individual placing a wager and the person or group placing the cash at
stake. In certain countries, a”betting account” is made in which cash deposited to the account is retained by a bookmaker and is
not available to players; others allow online gambling but do not allow offline gaming.
In the end, there are”rollover” trades in which the money
in a player’s account is removed before it is used.
In this manner, the term gaming covers a vast selection of trades and can refer
to all of these, as each has its own set of conditions
under which it may take place.

Adell · May 8, 2021 at 12:26

I absolutely love your blog and find nearly
all of your post’s to be what precisely I’m looking for.
Does one offer guest writers to write content for yourself?
I wouldn’t mind producing a post or elaborating on many of the subjects you
write in relation to here. Again, awesome blog!

Latasha · May 8, 2021 at 12:38

Having read this I thought it was rather informative.
I appreciate you taking the time and energy to put this short article
together. I once again find myself spending a significant amount of time both reading and posting
comments. But so what, it was still worth it!

Elizbeth · May 8, 2021 at 13:17

Greetings! I know this is somewhat off topic but I was
wondering which blog platform are you using for this site?
I’m getting tired of WordPress because I’ve had issues with hackers and I’m looking at options for
another platform. I would be awesome if you could point
me in the direction of a good platform.

Monique · May 8, 2021 at 14:36

Your style is unique in comparison to other folks I’ve read stuff from.

Many thanks for posting when you’ve got the opportunity, Guess I will just bookmark this page.

네이버계정팝니다 · May 10, 2021 at 11:08

For most recent news you have to visit web and on web I found this web site as a best web site for newest

Terrie · May 10, 2021 at 12:13

Heya excellent website! Does running a blog similar to this require a great deal of work?
I’ve no understanding of coding however I was hoping to start my own blog soon. Anyways, should you have any recommendations
or techniques for new blog owners please share. I understand this is off subject however
I simply needed to ask. Thank you!

Darrel Alvares · May 11, 2021 at 16:45

Your style is really unique in comparison to other folks I have read stuff from. I appreciate you for posting when you have the opportunity, Guess I will just bookmark this web site.

Charley · May 12, 2021 at 07:17

I think the admin of this site is really working hard in favor
of his site, because here every information is quality based data.

Del Kail · May 12, 2021 at 12:41

I would like to thank you for the efforts you’ve put in penning this website. I’m hoping to see the same high-grade blog posts by you later on as well. In truth, your creative writing abilities has inspired me to get my own, personal blog now 😉

Billy Landrian · May 12, 2021 at 12:47

Hello there! This blog post could not be written any better! Going through this article reminds me of my previous roommate! He constantly kept preaching about this. I’ll forward this information to him. Pretty sure he’s going to have a very good read. Thank you for sharing!

Aron Thomen · May 12, 2021 at 12:56

Very nice write-up. I definitely love this website. Stick with it!

website · May 13, 2021 at 00:53

Can the Jayhawks rebound from a humiliating loss final time out and cover the spread along the way?

more info · May 13, 2021 at 03:46

All bets will be void if the match is not completed, unless the outcome is already determined.

Gemma · May 13, 2021 at 05:52

Today, while I was at work, my cousin stole my iphone and tested to see if it can survive a
25 foot drop, just so she can be a youtube sensation. My
iPad is now broken and she has 83 views. I know this is entirely off topic but I had to share it with someone!

read more · May 13, 2021 at 11:02

Novices and novice bettors should really not differ their wager size.

네이버아이디판매 · May 14, 2021 at 06:33

Excellent way of describing, and fastidious article to get information on the topic of my presentation subject matter, which i am going
to present in school.

Adrianne · May 18, 2021 at 06:02

Hi my family member! I want to say that this post is amazing, great
written and come with almost all important infos.
I’d like to see more posts like this .

Stuart · July 1, 2021 at 10:50

Greetings! This is my first visit to your blog! We are a team of
volunteers and starting a new project in a community in the same niche.
Your blog provided us valuable information to work on. You
have done a extraordinary job!

Swimsuit · July 9, 2021 at 17:15

I don’t even know how I ended up right here, however I assumed this put up used to be great.

I do not realize who you’re however certainly you are going to a famous blogger for those who are not already.

Leave a Reply

Your email address will not be published. Required fields are marked *