Personal Finances - Personal Finance And Its Key Areas - Personal finance is known as the application of the finance principles to the financial decisions of any family unit or any individual. The personal finance addresses the methods through which the families or individuals budget, obtain, spend and save financial resources over the time, taking the account into various future life events and future risks.
The components of the personal finance can include: savings accounts and checking, consumer loans and credit cards, investments in stock market, benefits of the social security, retirement plans, income tax management and insurance policies.
Planning of personal finance:
A key feature of the personal finance is said to be the planning of the finance. It is a dynamic process which include reevaluation and regular monitoring. If counted generally, there are five basic steps of the personal finance. These are:
- Assessment: The personal finance situation of any person can be determined by accumulating the simplified rendition of the income statements and financial balance sheets. The personal balance sheet contains of the expenses of personal assets like: house, car, stocks, clothes,bank account along with the personal liabilities like bank loan, credit car debt, mortgage. The statement of personal income lists the personal expenses and income.
- Setting the goals: Having various goals in life are common, including the mix of some short time goals and some long time goals. Setting the financial goals can help a person to direct the financial planning. The process of setting the goals is usually done with the objective of meeting some financial requirements.
- Creating the plan: The details of the financial plan how to accomplish the goals. It may include: reducing the unnecessary expenses, investment in stock market and increase the employment income.
- Execution: Execution of the personal finance plan of any person requires perseverance and discipline. Most people get assistance from the professionals like financial planners, accountants, lawyers and investment advisers.
- Reassessment and monitoring: As the time passes by, the personal finance plan of any person must be monitored for the possible reassessments and adjustments.
What are the key areas of personal finance planning?
According to the Financial Planning Standards Board, there are six key areas of financial planning. It includes:
- Financial position: This key area of personal finance planning is charged with understanding all the personal resources which are available by testing the household cash flow and the net worth.
- Adequate protection:This area is basically the analysis of protecting any household from the unforeseen risks.
- Tax planning: It is the planning of when to pay the tax and how much to pay.
- Accumulation and investment goals: This area is also known as financial planning.
- Estate planning: This area involves disposition planning of any person after his/her death.
- Retirement planning: this area includes the planning of the costs to live at the retirement life.
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