We usually start planning our personal finance for the future in our late 30s to early 40s when we realize that it’s time to take responsibility for our family and save money for retirement as well. Every individual expects to accomplish their financial goals with age like savings for retirement, child’s education and marriage, emergency fund etc. in order to be financially stable when approaching retirement. Sometimes people tend to make financial mistakes while choosing where to invest and witness their hard-earned money depleting. To avoid such mistakes, one should always select the savings options after research into the investment type. As we have observed, due to the preconceived notions and lack of financial literacy, most Indians tend to make savings through life insurance, fixed deposits, post-office deposits, pension schemes etc. without assessing the risk and time value of money associated with the scheme There are plenty of  personal finance tips  which helps you to achieve your financial goals by earning high returns on your investments. It is very essential to have personal finance knowledge to  take best management decisions.. 

Below are some mentioned investment avenues for personal finance  where people prefer to invest:

Life Insurance

Life insurance is an annuity plan which ensures a steady income in case of retirement or the accumulated lump sum if it is a short-term policy. The payment to the insurance company can be made in two types: lump-sum payment or installments. A lifetime annuity is offered at a simple interest rate of 3% per annum with payable periods offered for 5, 10, 15 and 20 years. There is also a risk coverage associated with life insurance policies which can lead to a reduced return on your policy. The low returns, no benefit of compounding interest rates and risk factor associated with this plan makes it unattractive for investors.

Fixed Deposits

This instrument is designed for risk-averse investors, it lets you earn interest on your fixed deposit over a fixed time period. It offers interest ranging from 4.5% to 8%, depending on the tenure of your deposit amount, which can be a maximum of up to 10 years. Investors fail to consider the inflation factor when investing in fixed deposits. As inflation wipes out the interest earned on your investment. Let us take an example, suppose you invest Rs. 10 Lakh for 1 year in fixed deposit offering a 7% return. At the end of the year, the value of your investment will be Rs. 10,70,000. Considering the inflation which is 6% currently, it reduces the value of your money to Rs. 10,10,000. Therefore, you earned only 1% in interest on your investment considering the time value of money.

The above-mentioned schemes along with other schemes with similar characteristics like a pension scheme, post office deposits etc. are the most common investment options availed by people in India. People fail to consider the adversities associated with such schemes like fixed lock-in period, no benefit of compounding, depletion of wealth due to inflation and most importantly, no tax deduction benefit.

Few recommendations(tips) on managing personal finance: 

Goal-oriented savings: Many investors are not clear about why & what they are saving for. An individual should always draw a picture of what they are expecting from the investment. One should always set some financial goals for themselves which can help to keep them focused and maintain financial discipline. Today’s financial markets are consumer-friendly and have products for the needs of every customer. So why not do some research and select the best bet for your needs.

Tax Saving: We often select investments for personal finance without evaluating its tax structure properly and end up paying high taxes on the accumulated returns. The market has started offering instruments that come with the benefits of tax deduction. E.g. With equity mutual funds, long term gains are exempted up to Rs. 1 lakh, with debt funds, most of the times it reduces the tax to nil. If you take the ELSS (Equity Linked Savings Scheme) route, the tax from contribution to ELSS is deducted under Section 80 of the Income Tax Act. You can also put your money in rollover after every 1 Year to avail of tax benefits each year.

Financial Advisor: If you are not financially literate and not sure of what needs to be done with your savings, it would be best to seek advice from a financial advisor. x’A Financial Advisor can help you decide investment options that align with your financial goals as they are constantly aware of the instruments being offered in the market and are aware of options that have good prospects.

Inflation-adjusted return: When you are analyzing the return on your investment always search or ask for 

an inflation-adjusted return

, rather than nominal return.

 Inflation

 basically is an increase in the price of goods and services each year in an economy. The current inflation rate in India is close to 5%, so it is recommended to select investments which offer returns more than the

 inflation rate

 or give compounding interest rates