Personal Finance

🤑 PERSONAL FINANCE

Personal finance is the financial management which an individual or a family unit performs to budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.



Personal financial planning process

The key component of personal finance is financial planning, which is a dynamic process that requires regular monitoring and re-evaluation. In general, it involves five steps:

  1. Assessment: A person's financial situation is assessed by compiling simplified versions of financial statements including balance sheet and income statement. A personal balance sheet lists the values of personal assets (e.g., car, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit card debt, bank loan, mortgage). A personal income statement lists personal income and expenses.
  2. Goal setting: Having multiple goals is common, including a mix of short- and long-term goals. For example, a long-term goal would be to "retire at age 65 with a personal net worth of $1,000,000," while a short-term goal would be to "save up for a new computer in the next month." Setting financial goals helps to direct financial planning. Goal setting is done with an objective to meet specific financial requirements.
  3. Plan creation: The financial plan details how to accomplish the goals. It could include, for example, reducing unnecessary expenses, increasing the employment income, or investing in the stock market.
  4. Execution: Execution of a financial plan often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planner, investment advisor, and lawyers.
  5. Monitoring and reassessment: As time passes, the financial plan is monitored for possible adjustments or reassessments.

Need for Personal Finance
  •  No formal education for personal finance
  • Shortened employable age
  •  Increased life expectancy
  •  Rising medical expenses
Principle of personal finance
  • Consistency
  •  Timeliness
  •  Justification
  •  Documentation
  •  Certification.
Area Of Focus
  • Income
  • Taxes
  • Insurance
  • Debt
  • Expenses
  • Savings
  • Retirement
  • Investments

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