Financial Planning and Financial Products‘The learning from this chapter will enable students » get familiarized with the concept of financial literacy > know why financial literacy is important for every individual L > understand the basic terms associated with financial literacy INTRODUCTION The whole world has agreed that India is a country with massive growth potential and opportunities. But there is one big social evil which has continuously put a dampen on this growth potential ie., poverty. According to the Oxford dictio- nary, poverty means “the state of poor”. Now, there are many reasons for such widespread poverty in the country and one of them which is agreed by all is a lack of financial knowledge. Everyone knows that resources are limited be it at a world level, national level or personal. The ability to derive the most out of these scarce resources is the need of the hour. Thus, we can say that financial literacy is the first step out of poverty. The research by Linfield (2011) revealed that people belonging to the age of 25 to 34 years is the “fastest-growing bank- Tuptcy demographic’. There exists a strong argument for the requirement of financial literacy among all demographics. This book aims to provide basic skills one must possess to attain financial self-sufficiency for oneself and the family. FINANCIAL LITERACY Financial literacy refers to the knowledge and understanding of various finan- Cial skills one must have to make efficient and informed financial decisions. It included skills related to saving, investment, taxation, etc. A financially literate Person is better off at attaining his/her life goals than a non-financially literate She. The main objective is to safeguard oneself from financial fraud and distress. 1314 UNIT 1; FINANCIAL PLANNING AND FINANCIAL PRODUCTS: Financial decisions are something which an Indic ei out his/her life time, one might as well learn al Hout etka if defined the need for basic financial know-how. ach yout you do not need, soon you will have to sell things " IMPORTANCE OF FINANCIAL LITERACY Fi Titeracy educatio ant because it provides knowled, cation ii ort nancial literacy education is impo F ails for effective money management. Without financial inovitiea the acs and decisions that a person makes or does not make regarding sayj investments will not have a solid foundation. Financial literacy education to better understand financial concepts and allows one to manage their es effectively. In addition, it helps to manage money effectively, make fing decisions and achieve financial stability. In addition, financial literacy pro in-depth knowledge of financial education and strategies that are indispeng, for financial growth and success. It can also help a person get out of d adopting the best debt strategy. It may impact the future of the youth through the most popular skills which: budgeting, cost management, debt repayment, and understanding of risk-ret coordination on investment products. Acquiring these skills will require understanding of basic financial concepts such as time, money, interest, an sum and opportunity fees. With the diversity of credit products available the market, such as credit card debt, debit card withdrawal opportunities EMI, financial literacy is becoming increasingly important. Understanding d and having a basic knowledge of finance will help people use these prod responsibly. Financial literacy always teaches people how to make important financial de sions. It also increases financial discipline and financial opportunities. This lead to significant lifestyle changes such as saving money and investing i managing debt effectively and achieving life ‘ A i als eff x literacy will ensure one’s financial g life goals effectively. In addition, fin tures, debt collection, ads to budget mismatch, high-income expen .. | poor credit assessments, victi i d egative consequences, , victims of financial frauCH. 1: FINANCIAI TAL LITERACY 15 }/ of the time, we are faced with situati cy, tions that want us to a rational informed | How much should 1 save today to Set $2m when | retire? el re? | How much should we spend on credit to not degrade our credit score? jo a rr of our career as well, how much tax should not pay taxes on our income? Without appropriate financial knowledge Most importantly, an important Part | [pay and how to invest Properly to It would be very hard for someone to take correct decisions in all such plan out his career and based upon tl can help him achieve his goals, like menti today such that I have = 2,00,00,00 heard about annuities and how thi decision. So financial literacy is equally important in our careers as well. Today's world is connected more than ever before so financially empowering people shouldn't be as complex as it used to be. One can make people aware of hundreds of courses available online and encourage them to take them up, online forums on websites like Reddit or groups on Facebook can help people to spread awareness among people about the importance of financial literacy. Such methods are new and require People to connect with others to get bene- fitted. For people who fail to do so, the best way in the real world in organising workshops and meetups wherein people learn aspects of the financial world and express the issues they can face along with it, A financially literate person can measure his/her long-term/retirement goal with ease and accuracy. He/she then can accordingly plan for a retirement fund and annual/monthly withdrawal during retirement as well as an inheritance at death. Thus, it can be said that financial literacy plays a very crucial role in the successful financial planning of an individual. In the current scenario, more people are interested in tax-free investment/ Savings options. Thus, giving them knowledge about the non-traditional tool of Investment and savings like SIP and mutual funds can help them to earn a better ‘eturn on their investment and to create a larger retirement fund. Even though, an individual is aware of high-yielding investment and savings op- tions the tnvestor does not use them due to their risk aversion. This is because these investment options carry risks higher than tax-free securities 8 x With lower risk aversion does not use these non-traditional Sry “vings options. Thus, individual characteristics affect retirement p| iB: sail, if an individual lack the much-needed patna ee e help a ey should not hide away from their lack ‘therep if es eae ait Making BANCial Advisors. These financial advisors are the! a ees eea the most appropriate financial decision depending on the ci :ee Se crs 1, UNIT 1: FINANCIAL PLANNING AND FINANCIAL PRODU' Thus, to summarize a financially literate person is * Much better prepared for the financial emergencies More capable of achieving his/her financial goals ® Much more confident in his/her financial decisions ® Is less stressed out about the financial obligations f FINANCIAL LITERACY BASIC VOCABULARY BASIC VOCABULARY Annual Percentage Rate Annual Percentage Rate or APR is the rate which is paid by a poreaten a Hee ey borrowed in the course of a year. It is indicated in the form of a percent ge, P l, Asset | : An asset is something which holds monetary value i.e,, it can be converted into x cash. The purpose of an asset is to generate returns and create wealth. These | 5 | ga assets can be tangible or intangible and include things like investment, real EB estate, cash, intellectual Property, etc, | | ins Bait and Switch | Bait and Switch is a type of retail sale fraud/scam where the seller tries to Cr persuade customers by advertising deals which Seem attractive but later on, Ee are found to be non-existent or inferior and thus the buyer is offered an upsell | ‘ts 'S are too good to be true. It is an illegal trade practice and is subject | “ty to Punishment when found guilty. However, i¢ Is very difficult to prove such | My malpractices, therefore the customers have to ensue vigilance on their part. | Al iy Bank Abankisa for-profit financial institution which offers financi: which range from saving, borrowing, inve be the key players in the dissemination of fil R i legal arises when a pe F to pay| their debt or obligations, Under this, a legal Proceeding ee tel assets of the Person declared bankrupt are Sold in order to ff all the out Oy standing liabilities and obligations, It j pee RS S al; ho} 3 are unable to honour their obligation Iso a fresh Start for the people w! ieon, pay the put whe | Credit card 17 CH. 1S FINANCIAL LITERACY Borrower Aborrower is Person who Feceives or uses something which belongs to some- one else. The intention behind this is to return it bank within a specified time period often with some addi tional interest, For example, Ifa person takes a loan from a bank such person willbe called born rower of the bank. Budget A budget is a blue Print used to Keep track of the income and expenses of an individual. People indulge in making bud; utilization of their funds and Bets in order to ensure the appropriate : to identify the is a major step towards finan ' areas where control is required. It cial disciplin fe and attaining financial goals, Comparison shopping Bractice comparison shopping to stay financially di impulse buying, Credit if require payment to be made in a single instalaent cross many years which reduces the financial burden les of credit are credit on an individual, Examp! cards and bank loans, A credit card is a card facility provided by banks and other credit institutions where the cards can be used to make financial transactions up toa certain limit fora specific time Period say 1 month. All the credit accumulated after the spec- ified time period can be paid off by the lender afterwards within a given time Period, Default in repayment results in default charges. The credit i¢ available till the card expiry date. Credit report ti is i ridual. It states Acredit report is a document stating the credit history of an individual t all the eae information about an individual's credit position like pendingUNIT 1 jl FINANCIAL PLANNING AND FINANCIAL PRODUCTS loans, loans lender to ass th any defaute in loan repayment, etc. This report helps the decisions ae mine the Customer's credit Score and depending on the scorg made regarding the availability and non-availability of the credit 18 Credit Score aa ears bo fhteedigit number which epresents the likelihood that the ae T wil be able to honour their debt or not. It is calculated based On the ‘ormation available in the Credit report. In India, the credit score is issued Rpy authorized companies like CIBIL, Equifax and Experian and it Tanges from 399 to 900. The higher the Score more is the chance of receiving credit at a lower interest rate. The ideal Tange of credit score is between 750 to 900. Creditworthiness Creditworthiness can be defined as the extent of confidence a lender can haye in the borrower concerning his/her ability to loan repayment. It is determine based on how one has managed his/her past debts and obligations, } Debit card A debit card is a card facility offered by banks to their customers for instant withdrawals of money from their savings accounts. It can be done through ATMs| and micro-ATMs in rural areas. Since the amount is directly deducted from the) bank account it does not cause any burden of debt on the customer. The banks charge a nominal fee for such a facility. | : Debt is the money that is borrowed by one Party from other. They can be in th! form of personal loans, credit cards, car loans, home loans etc. They faciitat big purchases by individuals. Debt can be Secured, unsecured, revolving, et Default Default is a situation where the borrower fails to honour his/her financial dé or obligation on the due date. Default is the second and more serious stage non-payment that follows the stage of delinquency. Once a default happens, lender reports it to the credit bureaus and sells it to the debt collection agen Emergency fundlave na 19 CH. 1: FINANCIAL LITERACY in should be between 6 months’ salary to 12 months’ salary. It should be kept liquid assets which can be easily converted into cash. Expense From an individual's point of view, the expense is the amount of money Pak is spent by an individual on his/her livelihood. It included spending on food, education, travelling, housing, etc. One should make sure that his/her expenses are justified and not incurred on impulse, to ensure financial discipline. Income Income is the money earned by an individual through different sources like employment, business activity and investment. It is the main source of finance for sustaining one's livelihood. Income can be classified into gross income and net income. Gross income is the total income earned irrespective of any costs- Net income is the total gross income less all the costs (expenses). Interest Interest is the certain percentage of the principal amount that the lender changes from the borrower for the loan facility. It can be classified into simple interest and compound interest. Simple interest is calculated on the initial principal amount borrowed. Compound interest is calculated on the principal amount as well as the interest accumulated throughout the years. Need vs. Want The essence of personal financial planning is the classification between need and want. The need is something which an individual cannot compromise ie such expenses are bound to incur like food, education, shelter, etc. Wants are something which an individual desire and they can be postponed like a luxury watch, designer bag, etc. Opportunity cost Opportunity cost is the value one loses while choosing between two or more alternatives. For example, an individual has to decide whether to sell his/her investment today hold it for some more time and then sell it. If he/she choos- €s to sell it now, the opportunity cost will be the value of gains which he/she could have earned if he/she held his/her investment for more time. It applies iny life situation._ — FINANCIAL PLAN NING AND FINANCIAI- PRODUCTS 1.10 UNIT 1 rey youre na) sgotng strategy winere Tike F000 ANd re budge! ¢ i of mon Cee ing a certain sum cy Pay yourself first of PYP 8 4 Mite bidet 2 cen sum of on ing i also deemed as a meet Wr inclu saving ae mete Jerson moves esata ravings account each month without comp! Predatory lending il the lending malpractices like unfair ang es al ing i y i , high Predatory lending include high and unjustified lending rates, high fees, sive terms and conditions, in order, to lure. borrowers involves the use of aggressive advertising Coe oe loans which are too good to be ctice include f |. Examples of the pra ‘ "t want and can’t afford. h i any a payday loans, overdraft loans, excessive credit card debt, instant tax refund loans. Principal The principal is the amount of money which is borrowed by an individual needs to be repaid, It does not include interest. Rule of 72 Rule of 72 is a quick and instant technique to estimate the amount of time years) it will take to double an investment at a given rate of interest. It is culated by dividing 72 by the rate of interest. For example, if the rate of inte is 10% then the investment will double in approx. 7.2 (72/10) years. The ti Period estimated is in the presence of compounding Time value of money Time value of money or TVM is a conc ee today is not the same as the value money loses its value or purchasing po md rather than tomorrow unless som ie added valu for the loss in value due to time. oe —AL CH. 1: FINANCIAL LITERACY . ; S3,| The process of attaining financial literacy is never-ending. As the Cee nity] change, so does the required financial skills, So, itis advisable to start as early y ] 3 possible, otherwise, there is no age limit to become financially literate- ty a Rel ait) 1, What do you mean by financial literacy? 2. Why is financial literacy important? al a | 3. Explain the following terms. I any a. Comparison Shopping the, b. Predatory Lending Ted. c. Pay yourself first ang d. Bankruptcy e. Opportunity Cost ff Bait and Switch and g. Rule of 72 bss Cat er Gali) 1. You just started this course on financial literacy, so you must be curious (in to know that if being financially literate is so important then are people | doing something about it. Thus, you are required to conduct a financial i, literacy survey and see how it differs among different demographics. ne 2. Raj is your friend. He informed you that he wants to buy a laptop. When you asked which laptop he wants to buy and how he arrived at the deci- sion, he informed you that he selected it randomly without any research. Since you just started with the course of financial literacy in your cur- riculum, his approach didn’t fit you well. You are required to explain to him the importance of comparison shopping and why thorough research is important. Also, assist him in performing the analysis and arriving at the final choice. Document the whole process. (Classify all the available alternatives based on their attributes and rank them according to his preference).Saving and Spending Management LEARNING OUTCOMES The learning from this chapter will enable students > how to differentiate between needs and wants and why » get accustomed to the concept of spending management and its impor- tance > how to practice spending management through budgeting > acknowledge the need for financial discipline INTRODUCTION The previous chapter shed light on the concept of financial literacy and its importance. Continuing with this knowledge journey the first and foremost skill which one desire is cash management. At times people find that despite the availability of sufficient quantum of funds, one is still not able to meet the ends. This is so because one is failing to prioritize expenses. Cash management is not something in which you can expertise overnight. It is a long and ongoing process. Under this, one must be able to differentiate between the concept of need and want, learn the art of budgeting and follow a systematic approach to managing spending. The current chapter sheds light on such concepts and skills. NEED VS. WANT Needs are basic requirements that are necessary for survival, such as food, shelter, and clothing. Some examples of needs include food and water, shelter (a place to live), clothing to protect the body from the elements, medical care when ill or injured, etc. Wants are desires or things that we would like to have but are not essential for survival. at2.2 a a UNIT 1 Fy NANCIAL PLANNING AND FINANCIAL PRODUCTS Some example; jewellery, | It's important including tj us allocate money on the them not having enough figure out what is me and money, $ Our resources im with money. At time 'S of wants ‘© the movie. rk, ete, to distinguish things they required and what is not. Difference between Need and Want include : lectronics, such luxury items such such as Soing t Pillows or artwo, as expensive clothing or a8 smartphones or laptops, recreational activities, “ora theme park, home decor items, such as throy, between needs and wants because our resources, are limited. Prioritizing needs over wants can help ore effectively. Both needs and wants are Purchased 'S People confuse their wants and needs and spend too much don’t require or can be postponed which results jn Money for their needs. A budget can help people to Components Needs Wants Meaning Needs are things required by a person in order to survive Wants are the things which a person buys in order to satisfy his/her desires Necessity Needs are a necessity and very crucial for survival Want is something which offers comfort but is not a necessity for survival Satisfaction Satisfaction is achieved only when the need is fulfilled Merely thinking about wants can offer satisfaction Competition There is no competition in case of needs. Each and every need is Wants are competitive in nature and depending on the availability of funds the decision is made among all required to be fulfilled Different wants have different importance; thus, the choice is required to be made Severity All needs are equally important A need cannot be postponed Wants can be postponed Not fulfilling the wants can result in social and mental distress Deferment Non-Fulfil- ment Failure to fulfil needs results at the end of life Let us understand using some cases. a 1: Ri Mayank are a young couple in their mid-20s who have recent Bia gas ajob x a teacher and Mayank works in sales. the a mall apartment and are trying to save money so they can eventually a aie Riya loves designer clothing and frequently shops at high-end ae a nic enjoys going out to eat at expensive restaurants and trying new Ae They both have student loan debt and are struggling to save money:2.3 CH. 2 : SAVING AND SPENDING MANAGEMENT ; ts. rox’ | inthis case, Riya and Mayank need to differentiate between their needs and led 7 | Clothing and dining out are wants, not needs. While it is important to enjoy i and indulge in occasional luxuries, they need to prioritize their financial goals na | and cut Be unnecessary spending, Instead of shopping at designer stores, rely] Ra could shop at thrift stores or buy clothing from lower-priced retailers. ad Mayank could try home-brewing beer or cooking at home instead of going out ich to eat. By cutting back on wants and focusing on their needs, Riya and Mayank : in can save money and build a solid foundation for their future. *to case-2: Kartik is a 50-year-old man who has been working in the same job for the past 30 years. He has a comfortable salary and owns a nice house in the aul Da Kartik has a lot of consumer debt from credit card purchases and car loans. He has a habit of buying things he doesn’t need, like the latest gadgets and designer clothes. Kartik has also been neglecting his retirement savings and has not put much money towards them. In this case, needs to focus on his needs and prioritize saving for the future. Paying off consumer debt and building a retirement fund are needs that should take precedence over buying unnecessary luxury items. Kartik can work on cre- ating a budget and paying off his debt. He should also focus on increasing his retirement contributions, whether through his existing fund or other investment options. By prioritizing his needs and saving for the future, Kartik can create wealth and financial stability. Case-3: Sonali is a single mother of two young children. She works as a nurse and is struggling to make ends meet. Sonali’s car recently broke down and she needs to buy a new one. She has a small amount of savings, but she is hesitant to use it because she is worried about having enough money for other expenses. In this case, buying a reliable car is a need for Sonali and her family. Transpor- tation is necessary for Sonali to get to work and provide for her family. While it may be tempting to save her savings for a rainy day, the need for a car is more pressing, Sonali can consider purchasing a used car or negotiating for a lower price to save money. She can also look into financing options or government assistance programs to help with the cost. By prioritizing her needs and finding | ways to save money, Sonali can ensure that her family has the resources they | need to thrive. | Case-4: Tarun is a recent college graduate who has landed his dream job in the tech industry. He has a high salary and is excited to start his career. However, Tarun has a lot of student loan debt and is struggling to save money. He tends | to spend money on expensive hobbies and trips. cus on paying off his student loans and saving money for the future. While it is important to enjoy life and pursue his passions, Tarun should consider finding lower-cost ways to do so. Instead of going on expensive trips, he could try travelling to less popular destinations or staying in budget accommodations. ‘Tarun should also prioritize paying off. } In this case, Tarun needs to fo:AL PRODUCTS INANCL ner 1 FINANCIAL pLANNING AND Fl 24 PENDING MANAGEMENT agement is the art of tends his/her money ft ich requires consta) anges lik Itis rgencies, tC depending on circu! i expenses, unexpected ‘medical eme pe ni is the amount of funds which an individual earns in a ular period of time. An individual can have passive income and active jn, jtaive income is something which is ‘carned by putting in some effort like profits from business activity etc. Passive income is something which regu. File to no effort like interest on bank deposits, dividend income, etc. No a itis advised to have income as the cost of living is higher and higher. ‘ Expense: Expense is the amount spent by an indivi 1 . yy an individual on goods, s assets which provides some utility. These spending can be regular will rewring nat ike wee grocery bills, daily conveyance charges, ee ie, non-recurring like eating in a five-st a Re oe econ e-star restaurant, bi-a 3 ete, Keeping track of all , ban the expenses is one of the key rai in efficient spending management. mstantial cl Income: Income multiple sources of Steps in Spending Management Various steps to be \e followed by an individual for managing th 1g the spending: ig: s25 ENT (oH. 2 : SAVING AND SPENDING MANAGEMEE t Ways in automatically each month. It can help you stay 0” values financial goals faster. rack and reach your f it is im- moan 5, Save for Emergencies: Emergencies can happen Pe we * Mere ag Oh portant to be prepared, Having an emergency fund can hep YON iy unexpected expenses and keep you from going into debt. The at ae Sina Da, | be to save at least six months’ worth of expenses in case of an emerg! tive ingate 4, Make Smart Investments: Investing your money is a great way {0 BF0¥¥ rt like gaye, your wealth over time. However, it is important to make smart invest- ich reg, ments. Research potential investments carefully and speak to a financial c. Nowag,® advisor if needed. Also, be sure to diversify your investments to spread 1g is gery out the risk, "t 7, Live Within Your Means: Living within your means is an important Services part of financial discipline. This means spending less than you earn and which aa avoiding debt. Try to avoid lifestyle inflation where you increase your etc, i spending as your income increases. ual hea, 8 Avoid Impulse Buying: Impulse buying can be a major drain on your uiremen finances. To avoid impulse buying, create a list of things you need before you go shopping and stick to it. It can also help to wait 24 hours before purchasing so you can consider if you need the item or not. 9, Stay Organized: Organization can help you to stay on top of your finances ing: and ensures that you don't miss any payments or bills on the due date. Create a system for managing your finances and keeping track of bills ecoming and payments. y @ plan) 40, Get Professional Help: Finally, if you need help with managing your income finances, don’t be afraid to seek professional help. A financial planner or leans. A) accountant can help you devise a plan for reaching your financial goals uch you and provide advice on investments and other areas. ack and) HOW TO MANAGE SPENDING: BUDGETING de I disci} A budget is a blueprint of all your income and expenses. It lists out all the sources of income, all the needs which are required to be paid for and the wants 3-term, | to you that you intend to fulfil. The lists help you to make sure that you jump to your goals} wants only when all the needs are provided for. The wants will have to wait if if a the funds are sufficient enough only to cover needs. entity) Let us understand with a hypothetical scenario. Making a plan for how much money you will have to spend, manage, and save t also lis called budgeting, Setting goals, keeping track of expenses, and keeping tabs fee On spending are all part of this monthly strategy. It is an effective instrument : for assisting people in maintaining their financial life in order and achieving ot how" their financial goals. punt. ID FINANCIAL PRODUCTS UNIT 1: FINANCIAL PLANNING AN A person's hypothetical monthly budget to manage his finances Would jog | something like this: | Ye Income: ly 7 30,000 in salary py’ % 1,000 in investment income j at % 31,000 in total income | st Expenses: . p % 3,000 in utilities, = 7,000 in rent } ie Buying food: 8,000 se? Internet/Telephone: & 500 ; & Vehicle Loan EMI: € 6,000 '¢ Gas: € 2,000 Ses % 2,500 for entertainment | estat % 29,000 in total expenses. } abe Savings: ot % 2,000 (31,000 - 29,000) in total monthly savings | toe ac Finding one’s income is the first step in making a budget. In this example, ty Pleusel person’s income is comprised of a % 30,000 salary and % 1,000 in investmen) ™aS#e0p income, totalling € 31,000. Swinton Making a list of one’s spending is the next stage. Both fixed costs like rent att utilities and variable costs like food and entertainment should be on this is) *RDep The final cost stands at % 29,000. Pelton The person in this scenario has a total monthly savings of & 2,000 after dedi hice ing all expenses from all income. This sum can be used to increase savings! "hay, reduce debt. re For people to take charge of their money and achieve their financial ay 5 ‘de budgeting is a crucial tool, Maintaining a budget and keeping track of i! ea” and expenses are required. Individuals may make sure they are making ™ oN dM financial decisions and remaining on track to achie | i ve thi by develo a budget and keeping track of their expenses, cocoa * SAVING ‘ Se Siena sng raed eh Rede for fre con Grime ete eas eh ting. mon sane ace tom (mony saneeo mor sony erat vPle, the stment nt and uis list educt- ngs or goals come , wise, oping ies oF tant yanks) rying more’ cH. 2: SAVING AND SPENDING MANAGEMENT. 27 can act as an emergency fund as it is highly liquid ie, can be q me money Sav when needed. sly wieharawe ‘ ce, ne Savings, i deposited, turn Into profitable investments when channelized L i, via banks. >, pependency on foreign funds reduces, 4 tong;term sustainable investments lead to sustainable growth, most popular means of saving money is through bank deposits, The types Trek accounts in India can be primarily clasified into three major categories, sihich are as follows: 1, Savings Accounts hese are the types of accounts that give a basic percentage of interest rate and are meant for households and individuals to inculcate the ‘habit of saving ifferent banks offer different types of rates on the saving account dependie Differe iB pending upon the applicants 2, Current Accounts Current accounts are those types of accounts which offer no interest rate but provide useful services with the help of a business therefore such types of ac- counts are opened by businessmen. The current account provides facilities such as no limit on withdrawal and deposit, a cheque facility, and various types of transactional rebates and net banking facilities, 3. Fixed Deposits Fixed deposits offer the highest interest rate among any type of account avail- able in the category. Fixed deposits are made for investment over a longer-term horizon and they generally have lock-in periods so that the depositor cannot withdraw his/her money prior to a specified and agreed date. Fixed deposits also include types of accounts such as recurring deposits which require the de- Positor to deposit a certain pre-agreed amount at a pre-specified time interval for a longer-term horizon to access the higher interest rate as compared to the savings account. FINANCIAL DISCIPLINE Financial discipline means how well one is able to adhere to his/her spending rules and guidelines. Financial discipline doesn't appear magically. One has to Work hard to control their fickle mind and stick to their budget and spending Plans to avoid regret afterwards.FINANCIAL py SIAL PLANNING AND FINANCIAL PRODUCTS 2.8 An individual ¢, ‘an atta) and tricks of budgeting aren @ One-time thing) and disciplined individual 1 ricial discipline by educating oneself about the tips © and spending management, developing a habit (not just finally taking accountability for the actions. A financially srs s better off at Protecting oneself from debt traps. An individual can become financi n i ae : ancially disciplined with money in life through: 1. eae Your Financial Goals. The first step in becoming financially Plined is to set clear; attainable goals. Determine what you want to achieve financially and Why. Consider both short-term and long-term Beals. Make’ sure'they are taeasurable endidme!Gound 2. Track Your Spending: You must know where your money is going in order to stay on top of your finances, Keep track of your spending to identify Patterns and areas of improvement. Use a budgeting app or spreadsheet to log all of your expenses, 3. Create A Realistic Budget: A budget is an essential tool for becoming financially disciplined. It helps you to plan for your income and expenses Create a budget that works for your lifestyle and stick to it. 4. Automate Your Finances: Automation is a great way to stay disciplined with your finances, Set up automatic payments for bills and regular trans- fers into a savings account. This will take the guesswork out of managing your money. 5. Eliminate Financial Temptations: If you're surrounded by financial temptations, it will be difficult to stay disciplined with your money, Find ways to reduce temptation and stick to your financial goals 6. Make Saving a Priority: Saving is an important part of financial dist pline. Make sure you set aside a portion of your income each month for savings. Consider setting up a separate savings account or investing in retirement account. 7. Find Ways to Cut Costs: Look for ways to save money on daily expense Make adjustments to your budget and consider switching to lower-o% providers for necessary services, costs, go for professional help. A financial advisor can help you an appropriate plan to meet your financial goals timely. + ga iacrice Havent Becomine financially disciplined takes tim. 1 get discouraged if you don’t see immediate results, Remain patett continue to work towards your goals, Bo eewardl YourseliCslebrate your successes and reward yous making progress towards your financial Qoals. This will help to ke? otivated and on track,tip, ise ally lly ci 2: SAVING AND SPENDING MANAGEMENT EP REVIEW QUESTIONS ntiate between need and want. y spending management? Give steps in spending 4. Differe! what do yo : management. 3, What do you mean discipline? 4, What is budgeting? yy Coun (e7 Venda nthly budget for your expenses. Keep track of them for a onths. During this time period practice financial discipline. were able to tame your spending or not. Classify your eds and wants and see how much you are able to save u mean Db: by financial discipline? How can one practice financial 4. Prepare a mo! while say 6 m Compare if you expenses into ne’ if you are able to control your wants.