Personal finance is basically the financial planning that an individual, or family unit, undertakes on a regular basis, with an emphasis on budgeting, saving, and spending money over a long period of time, taking into account various economic risks and possible future life outcomes. A good personal finance strategy can go a long way toward boosting personal confidence and thus personal productivity. However, most people are not aware of what personal finance entails. Thus, a great deal of confusion and misunderstanding surrounds the term “personal finance.” This article attempts to shed some light on the issue by discussing the three main categories of personal finance, as well as providing some examples of how it applies to individual borrowers.
Managing your money: In managing your personal finance, you are basically setting aside a portion of your paycheck, savings, and assets every month to cover various needs. Your goals for retirement, for example, may vary depending on your age and current lifestyle. Likewise, your investment goals may change with changes in your personal finances. To this end, your investment portfolio should include stocks, bonds, real estate, residential and commercial real estate, gold, and personal insurance.
Debts and Payments: Personal finance management also includes considering your debts and any outstanding payments. Debt refers to any liabilities that were not fulfilled on your initial payment (such as student loans). These obligations include store-related bills (such as utilities), credit card debt, and personal loans. The purpose of debt repayment is to reduce monthly or annual spending and increase the total net worth.
Credit Cards: One of the biggest mistakes made by those newly reading and writing financially is relying too heavily on credit cards. Instead of using checking and savings accounts for purchases, you can often use your credit cards to make everyday purchases such as food, gasoline, and groceries. Unfortunately, relying so much on credit cards makes it nearly impossible to budget and prepare for unexpected expenses. The lesson to be learned is that a large proportion of consumer credit card debt is unsecured, which means that the owner does not have any collateral to secure the debt in the event of a default.
Saving Money: Many new money-saving strategies are not taught to children entering adulthood, but one of the most important is saving for a child’s education. The family should always be prepared for unexpected educational costs. The good news is that there are now schools that are specifically designed to prepare students of this type for the future. Parents can also contribute to their children’s college savings. Educating your children is an important part of financial planning, so don’t overlook this valuable lesson.
See Related Articles: As you work on developing a solid financial plan, you should also consider reading the relevant articles. For example, if you are concerned about inheritance that may come in an unexpected gift, you may want to read How to Save Money on Taxes. A financial planner who is passionate about his or her profession is likely to provide useful and insightful information about all aspects of personal finance. If you see someone on a forum who seems to have knowledge of a certain aspect of finances, follow the advice they give.
Managing your income: Another valuable component of a sound financial plan is managing your monthly and yearly income. As your income increases, your standard of living increases as well. One of the reasons income management is so important in personal finance management is that income volatility can easily leave you vulnerable to costly shocks to your bills, such as a significant increase in your monthly mortgage payment, which can cause a major financial shock to your family.
Personal finance starts with your daily and weekly spending habits. You must develop good money management skills, even if you already possess substantial income. It is important that you spend the money you earn wisely, or it will soon be wasted. To successfully apply personal finance principles, you must create a plan to save and invest your income. By saving and investing your income, you will be building the foundation for your future wealth. When you start applying personal finance principles, you will quickly discover that your current situation – how you spend your money and what you put aside – will provide you with an excellent opportunity to create a secure future for yourself and your family.