4 Cardinal Rules of Money Management Money management is an important practice that should start with first paycheque

It's not just the rich or the elders who have to create a plan for their money. Money management is an important practice that everyone should start with their first paycheque itself. Being well organised with your money is essential to living a financially sound life.

We tell you four cardinal rules of money management that you must follow.

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Spend less than you earn

The first step of budgeting is to understand whether your expenses are in line with your income. If you don't track your expenses diligently, it is easy to blow up all your income even before the month ends. For credit card users, it's even easier to spend way more than they bring in as credit can create an illusion of higher affordability.

To ensure you don't do this, note down your monthly essential and non-essential expenses and subtract them from your income. If you get a negative number, start eliminating avoidable expenses till you get your spending on track.

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Save at least 10% of your income

Importance of saving cannot be overstated. It shelters us during emergencies and empowers us to spend on things without having to borrow. And yet, many postpone including saving in their budget as they give spending precedence over saving.

Financial planners say that 10% is the bare minimum that should be stashed away at the start of the month before you start spending. You can either automate this in a liquid fund, or start a recurring deposit or simply transfer it into a secondary savings account.

New earners with less income should not postpone this practice for later thinking that 10% on their skimpy incomes will be insignificant.

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Control your debt

Data from RBI shows that household debt of Indian's has increased significantly between FY 2013-14 and FY 2018-19. Share of personal loans and credit card debt alone more than doubled in that period.

Easy availability of credit encourages spending and can easily push you into a debt trap if not used responsibly. One should try to avoid taking loans completely for discretionary spends. If you do have to borrow, make sure that equated monthly installments (EMIs) do not exceed 20 per cent of your income.

When you take a loan, make it a priority to repay it before taking up any more loans as multiple loans affect your ability to build wealth in the long term.

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Invest for your future

Saving helps create a safety net for emergencies but investing is essential to fulfill future financial goals. Don't let your saving idle away in deposits or savings account as inflation will eat into its value. Once you have accumulated a corpus for emergencies, start investing your savings in suitable financial instruments to grow that money.

Also Read: Why Saving is Not Enough

Start by mapping out your goals. Depending on the time horizon of those goals and your risk appetite, invest across a mix of financial products. This strategy is known as asset allocation.