R Madhavan on financial literacy: ‘Great, successful men keep track of their own accounts’

“Your financial journey requires more than earning and saving money, it demands a strategic plan for managing that wealth, mitigating risks, and making informed choices. In the era of economic instability, cyber-attacks, and constantly evolving investment opportunities, financial literacy will prove to be your greatest asset,” said Mukesh Pandey, director of Rupyaa Paisa.

Here are five fundamental financial principles that will protect your money and build financial independence.

1. Understand the Power of Budgeting

A well-structured budget is the backbone of financial stability. Follow the 50/30/20 rule: 50 per cent of income for necessities, 30 per cent for discretionary expenses (entertainment, dining out), and 20 per cent for savings and investments. Use fintech applications to track your spending and improve money management.

2. Create an Emergency Fund

An emergency fund can come handy in case of unexpected expenses—medical emergencies, job loss, or urgent repairs—that can derail financial stability. Financial experts recommend saving three to six months’ worth of living expenses in a highly liquid, interest-earning account. This ensures you don’t resort to high-interest loans in times of crisis.

Learning how to track income and expenses ensures individuals live within their means. (Source: Freepik)

3. Master the Basics of Credit and Debt Management

A strong credit score (generally 750+) is imperative for favourable loan terms and interest rates. A good credit profile is maintained by keeping the credit utilisation ratio below 30 per cent), paying bills on time, and avoiding unnecessary debt build-up. This practice will ensure your financial credibility. You may set up auto-payments to never miss a credit card repayment due date.

4. Invest Wisely to Build Wealth

Investing is key to long-term financial security and wealth generation. Minimise risk by diversifying investments across equity (stocks, mutual funds, ETFs) for growth, bonds and fixed-income instruments for stability, and real estate and alternative assets for diversification. Understanding and leveraging the power of compounding will generate wealth efficiently.

5. Prioritize Financial Security Through Insurance

Insurance is the first major risk management tool. Having health insurance, life insurance (especially term insurance), and disability coverage protects one’s finances in case of unforseen events. Evaluating premium versus coverage, policy exclusions, and ratios of claim settlement ratio would guarantee selecting the right one.

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