In today’s world, schools and such institutions prepare us to get a good job in the future. They help us learn about various subjects rather than refine our intelligence. They focus on improving our memory power, which is quite irrelevant because nowadays, information is a commodity. You can access it from anywhere at any time. So what’s the point of remembering?
Schools may be the place where we learn about various career options, but they fail to teach us the most important and necessary skills to advance in our life. Many people often have poor financial habits, which may cause problems later in their life.
You won’t be reading this post if you never made poor financial decisions in your life. But, of course, it’s okay to make bad decisions but not learning from them and continuing to make them, again and again, is a problem. So, if you want to make better financial decisions and improve your personal finance, this blog will tell you everything in detail and give you practical tips to begin your financial planning.
What is financial planning?
Financial planning involves planning and creating strategies to handle your financial life ahead. A good grasp of financial knowledge helps a person make better financial decisions in their life and help them make better decisions.
What does financial planning entail?
Financial planning is a large process that involves learning about various things, such as taxes, online loans, credit scores, tax rebates, and various other financial elements. We’ll not discuss taxes or such in detail in this blog because it is a huge topic in itself. But for the overview, below are some of the financial instruments or terms you must know before building personal finance.
If you live in a country, you need to pay taxes. For example, if you have an income source and fall under a tax slab, you are liable to pay a certain amount of tax on it at the end of the year. Every country has different tax slabs, which you can view on the government’s official website.
For instance, this is the tax slab for Canada
2021 Federal income tax brackets* 2021 Federal income tax rates
$49,020 or less 15%
$49,020 to $98,040 20.5%
$98,040 to $151,978 26%
$151,978 to $216,511 29%
$151,978 to $216,511 29%
More than $216,511 33%
The percentage of tax will depend on what income slab you fall under. So, if your annual income is $50,000, you fall under the second tax slab and have to pay 20,5% tax on your total income. You can pay taxes on the government tax-paying website or get help from a CA for taxes.
Tax rebates are the legal deductions you can make on your income, such as health insurance, life insurance, child care, etc. These deductions are available to you, and you claim a rebate on them. The money you invest on these is non-taxable, thus, lowering your overall tax.
Once in a while, you have to take out a loan or an online loan to deal with some uncertainties. These situations often come unannounced and can leave your pockets empty. So, learning about loans and credit is essential to taking loans. Moreover, the sooner you start getting involved with credit, the better it is for you, as it improves your credit score, which is a crucial factor in taking a instant short terms loan in Canada.
A credit score is a three-digit number that reflects your creditworthiness. It takes quite some time to build a credit score. If you make timely payments and use credit properly, you will have a good credit score. However, if you miss or default on payment, your score can drop drastically, taking some time to improve. You can also take no credit check online loans form online loan lender.
Inflation is the rise in the prices of goods and services in an economy. Every country has a percentage of inflation. It could be positive or negative. Canada’s inflation rate is 5.7%, which is above the normal inflation rate. So, the $100 you had in 2021 has lost 5.7% of its value since last year. So, it is not the actual deduction but the deduction in the value of those $100.
To cope with the loss in dollar value, you need to make more money. One of the best ways to have good financial security is to start investing in the future. This will grow your income and ensure you have set money for the future.
How to start personal financing?
Starting personal finance is not the real problem, but staying disciplined with it is the real question. So, to make it easy for you to start financing, here are some practical steps you can take right now.
- Track your current financial status
Before you start managing finance, know your current financial position. Track your income sources, check your liabilities, and know your spending, and when you have a clear idea of your current financial position, you can start to improve it. There are many apps and websites, and you can even use excel sheets to track your financial status.
- Budget the money
The moment you receive your pay check, segregate the income into small parts. We only recommend creating three budgets: needs, wants and investing. Set a portion of your budget into these three categories, with needs having the largest budget. This will allow you to properly use your budget and stop you from spending too much.
- Start investing
Use the money you have set aside to invest in stocks, shares, NFTs, and bonds. This is a great way to grow your money and make a great return on investment.
- Set goals
We have placed goal setting at last because you don’t need to know what your goals are in starting. So let’s be practical here. It’s great if you have a goal, but if you don’t, it’s okay. You can start and set a goal at the later stages.
These simple steps will help you manage your personal finance. And don’t forget to educate yourself about the topics mentioned above. They all play a great role in personal financing.