The 7 Founding Principles of Personal Finance

You need to have a budget in place to manage monthly expenses, balanced against a list of all your expenses. If you are overshooting your budget, you need to figure out how to reduce living expenses by cutting down on lifestyle 'extras'. Budgeting will teach you how to manage your expenses and help you save more. 

Managing your debt is important. Your monthly EMI outgo should never be more than 30% of your income. Also, prioritise repaying high-cost debt like personal loans and credit card outstanding as soon as possible.

Taking adequate risk cover is one of the most fundamental personal finance principles. Get life insurance with a coverage of at least 10 times your annual income¹. You should also buy health insurance for yourself and your family. It is recommended that you buy a family floater policy with a base plan plus adequate top-ups depending on your age, dependants and location². 

Ensure that you build an emergency fund of savings to help with sudden cash requirements in a crisis. Ensure that the amount you set aside is enough to support you, without any additional income, for at least six to twelve months. Since you may need to withdraw money quickly from the emergency fund account, it is recommended that you park it in short-term liquid funds.

You need to effectively plan your taxes to make the most of IT deductions. Income tax deduction for salaried employees is available under various sections. Section 80C offers a deduction of up to Rs 1.5 lakh p.a. for various payments and investments. 

For your money to grow over time, it is important that you invest it well. Where you choose to invest your money will depend on your risk profile and the time horizon for your goals. While investing in debt products can give you stable returns, you might need to invest in equities for higher returns. You can invest in equities by directly buying stocks or through equity mutual funds. 

Investment planning for retirement is a key part of personal finance. Since it is a long-term goal, it is recommended that you invest in equity mutual funds through a systematic investment plan (SIP). You can estimate the value of your retirement corpus and use an SIP calculator to have an idea of how much money you need to invest every month.