What Lies at the Cusp of Managing Personal Finances and Online Trading?

Summary

• COVID-19 crisis has aggravated the need for robust personal finance management.
• Personal finance management includes all the financial decisions of a household or an individual that assist in better management of funds.
• Robust strategies are essential across six pillars: Financial Planning, Budgeting, Savings, Tax Planning, Insurance and Investment.
• Disruptive online trading trends are facilitating management of personal finances.
• Cautious approach in portfolio management based on financial advisors and online trading plays a crucial role here.

COVID-19-induced economic and financial havoc has been aggravating the dire need to manage personal finances effectively. Recent international research has been demonstrating a link between psychological health and financial wellbeing of individuals.

It therefore becomes imperative to delve deeper into the Personal Finance space and the strategies for better financial management. Various studies have highlighted that people feel better about themselves when they can control their finances and are able to handle the obstacles that life throws at them. Global Virus Crisis has been one such crisis for them.

While retaining job and earning money is a challenge during current volatile job scenario, managing the income it is all the more challenging. The uncertainties such as risk to health and life, volatility in the economy, financial challenges and retirement planning have further enlightened the role of personal finance and effective management of money.

Must Read! Setting the Landscape of Personal Loan Space Amid COVID Crisis: Financial Lenders Vs Borrowers

Quick Guide for Personal Finance Management

Personal finance management includes all the financial decisions of a household or an individual that assist in better management of funds, preparing them for future financial success. It encompasses the following key components:

Financial Planning: It has been rightly quoted by the famous American polymath, Benjamin Franklin, “If you fail to plan, you are planning to fail”.

In this context, one cannot deny the importance of Financial Planning in managing personal finance. Financial planning involves five steps, including:

• assessment of a financial situation
• goal setting
• creation of the financial plan
• execution of the financial plan
• monitoring of the financial plan for reassessments.

Budgeting: One can make smarter choices with the money by developing a comprehensively written budget. A budget assists in keeping a count of expenditure patterns and organising monthly expenses.

The significance of budgeting is clearly depicted by increasing number of people now using different budgeting apps for budgeting and managing their personal finances.

Savings: Savings management is a critical part of personal finance. One may choose to deposit a portion of the income frequently as it protects the funds and provide an added benefit of gaining interest. The money set aside can also be used to meet unforeseen expenses.

Tax Planning: Individuals should map tax planning to their overall financial objectives and goals. Also, they should seek ways of saving taxes via tax reduction programs.

Insurance: Insurance protects an individual from risks emerging from unforeseen and adverse events. If individuals are not adequately insured, disasters and accidents can leave them in financial ruin.

Investing: Investing is about buying assets that carry a rate of return in an expectation of receiving more money over time than originally invested. People can look at different investment options across varied asset classes as per their return expectations and risk profile.

There are numerous investors across the world who have earned millions while adhering to their solid investment principles. To name a few, Warren Buffett, Benjamin Graham, Jesse Livermore, Peter Lynch, John (Jack) Bogle, Philip Fisher, Bill Gross and John Templeton are some of the greatest investors who have proved themselves as terrific money managers in the financial world.

Online Trading Facilitating Management of Personal Finances

The invention of internet and smartphones is undoubtedly making the management of personal finances a seamless process for the end user; otherwise, keeping a track of the financial portfolio in a world full of complex investments is certainly a challenging task in the modern era.

Given the emergence of Neobanks, online payment transfers, mobile payments and other fintech solutions in Australia, individuals can now effortlessly manage their finances from a single application.

No wonder online trading is facilitating the use of portfolio management apps in the nation!

Though budgeting apps are increasingly in use to keep a track of expenses and savings in Australia, the use of portfolio management applications stays ahead of the curve. The key to effective portfolio management is the mix of assets that not only provides balance, but also protects against risk.

Online trading platforms have been providing access to a broad range of investment opportunities, enabling direct investment in multiple financial assets, including bonds, exchange traded funds, domestic and international shares, etc. Such platforms allow individuals to choose appropriate investment options based on their respective risk appetite and time horizon.

What could be more exciting if we can buy and sell financial assets as easy as shopping for groceries online? One just needs a smartphone and a mobile trading app to enter into the world of high-speed trading, wherein we can keep a complete hold on investments without the interference of a broker.

From reduced transaction costs, greater control and flexibility to elimination of brokerage bias, less time consumption and reduced chances of errors, the benefits of online trading are far-ranging.

Risks Associated with Online Trading

So why not just get rid of your financial advisor, pay lower fees to perform online trading and build your own portfolio?

It seems to be a good idea if one is aware of the hidden dangers of doing independent online trading. The easy to conduct benefit of online trading may put an investor at risk of making poor investment decisions, resulting in significant losses. In addition, individuals can lose out on a lucrative trade if their internet connection is interrupted or too slow.

However, it is imperative to note that the risks associated with the online trading need to be well evaluated against the advantages for the same. To evade the slim chance of making wrong investment choices, one can build a “buy and follow closely” portfolio to take a conscious investment decision.

Nonetheless, investors can consider a hybrid approach based on benefitting from online trading for a portion of the portfolio along with obtaining remaining flux as inputs from a financial adviser – this may set the context for a customized strategy on portfolio building.

Remember, Mr Benjamin Franklin’s famous quote, “An investment in knowledge pays the best interest”.