How To Make Financial Portfolio: Personal Finance

Personal Finance, personal finance management tips with modern money portfolio method

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Money has always been an essential factor in modern human life. Managing personal finance is very necessary as most of us have a fixed salary or income, so if we don't plan the expense and savings segments properly, it can take us to meet a financial crisis. Now when it comes to the point of money portfolio most of us go with the very basic funda which is dividing money into two parts, (i) Regular Expenses Account & (ii) Savings Account with the prosperity of our lifestyle and the development of regular habits with technology, financial management has also got reinvented with updated ideas of financial portfolios. In this article, we will talk simply about the twenty-first generation’s post-Covid concept of personal financial portfolios.

This idea believes that you should divide your money into four (4) accounts, in other words, your financial portfolio will consist of four segments. Those accounts will be primarily named as,

1. Regular Account

2. Emergency Fund

3. Long-Term Savings

4. Retirement Fund

Now we will go through a breakdown of what these accounts are!

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1. Regular Account

The name is its definition itself! The regular account is the account we use to pay our daily expenses and common fixed costs. This is the account on which we will have a debit or ATM card, use to get random payments, pay for shopping, and all the other regular transactions.

2. Emergency Fund

Everything in this world is uncertain, we don't know what might happen at the next moment. Any second can bring an emergency or unplanned situation so we have to be ready to face it. When it comes to facing something, probably financial backup will be needed which is the reason behind making an emergency fund.

Then the question comes, How much money should I consider as an emergency fund? The single-line answer is that it should be 3x to 6x of the amount you need for living in a month.

For example; if you need $1000 to manage all your expenses for a month. Then your emergency fund account should hold between 1000*3=$3000 to 1000*6=$6000

The use of this emergency fund will be for any emergency situation such as a medical condition, job change, accident, or for anything that makes us meet a financial shortage. Basically, experts think within 3 to 6 months you will overcome the situation you were going through.

‘NB. After facing the Covid 19 situation, some financial experts say that your emergency fund could be 12x of your monthly expenses as Covid 19 has prisoned us by lockdown for about a year.

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3. Long-Term Savings

Do you own a house? Have you a car? Most people under 30s will answer, I have a plan for buying or having it. 

; This is known as a long-term plan. 

Long-term savings is the account where you save money irregularly to establish something not emergency but you need or want to get in life with a high cost. Many of us have a dream business, desired house plan, ambition to go abroad for higher studies even sending our children to an expensive and high-quality university and so many others. These are all the things that are not a must for life but we plan to have and to meet that goal we have to save our money on a long-term base. You can have more than one account for these plans; suppose you don't have a house then you can have an account to save for getting a house and another one for your children's higher studies.

But always keep in mind that you must work and save according to the order of priority. Buying a car might not be a good decision if you don't have a house. So think before doing all the expenses. Again if you don’t have sufficient money in your emergency fund then saving for a luxury apartment is not ideal.

4. Retirement Fund

We won’t have a job or work hard for a lifetime as a result we will go to retirement from work or business. The truth is that living is now impossible without money so we will need money then! For managing that situation of life, many wise have established the concept of retirement savings, this money he/she will use after his/her retirement from regular work. The retirement fund is just not limited to liquid money it also consists of the building or having the plan to make some earning source after formal retirement. Mostly those sources will be passive income so that you don’t have to take physical pressure to earn moreover less mental pressure too. 

For example, you can buy an extra apartment to give it on rent or start a little business managed by others or even buy a partnership of companies and get dividends.

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In conclusion, money is an asset and for all the activities you do in life or decisions you make in life, you are the only one accountable for each of them. Money is a sensitive element think deeply about using it, also life is not certain so don’t even be too miserly to yourself that you miss the casual opportunities to laugh. There must be space for hobbies, enjoyment, and entertainment in your financial decisions too.