WHAT IS PERSONAL FINANCE?

What is Personal Finance?
WHAT IS PERSONAL FINANCE?
Every individual will start earning money at some point in his/her life. At the same time, they will become financially independent and spend the money wherever they want. Someone asks you what is personal finance? You can simply answer it by saying, it is a process of managing your money in an optimal way to create the maximum level of satisfaction.
 
Every individual, family, or household is living in different situations in terms of money. Whereas all are taking financial decisions in an organized manner to meet their needs and wants.
To increase the quality and satisfaction of your life, you have to make a comprehensive financial plan. That will ultimately reduce uncertainty about your future needs and goals.
BENEFITS OF EFFECTIVE FINANCIAL PLANNING
 
Enhance effectiveness in locating, spending, and shielding your financial resources.
You can manage your debt, dependence on others because of better control of your finances.
Improved personal relations because of better planning and successful communication of financial decisions.
Because of financial planning, you can get freedom from financial worries.
PERSONAL FINANCIAL PLANNING PROCESS
What is Personal Finance, Financial Planning, Benefits of personal finance, personal finance principles
Personal financial planning is a systematic process, it requires continuous monitoring and revaluation. Steps of the process are:
SELF-ASSESSMENT:
The first step towards personal financial planning is self-assessment. You should know about your assets (e.g., cash, car, house, stocks, bank balance, account receivables). And liabilities (e.g., bank debt, credit card due to payments, mortgage, car lease payments). You can know about your financial position by maintaining your balance sheet.
You should also be aware of your financial performance that can be done by maintaining the income statement. As income statement describes a summary of your income and expenses.

SET YOUR PERSONAL FINANCIAL GOAL:
Your personal financial goal can be short term and long term. Long term personal financial goal would be, “retiring at the age of 60 with the net worth of billion dollars.”
Your short term personal financial goal would be “saving money this month to get a new smartphone.” The main objective of setting your financial goal to meet financial requirements in the future.
 
CREATE A FINANCIAL PLAN:
The financial plan is a summary of your current situation. Based on your financial plan, you have to make a decision. For example, saving money, investing money in stocks, increase your sources of income.
IMPLEMENTATION OF A FINANCIAL PLAN:
Implementation of the financial plan requires commitment, discipline, and perseverance. You have to focus on your needs because you want to fulfill your wants in the future.
For better implementation of the financial plan. You have to consult, accountant, personal financial planner, lawyer, and investment banker.
EVALUATING FINANCIAL PLAN:
By creating and implementing a financial plan is not enough. You have to monitor the progress of your financial plan. Because of the flexibility in the plans, you can do readjustment and reassessment if needed.
PERSONAL FINANCE PRINCIPLES
Financial circumstances differ from person to person; it depends on their income, wealth, and expenses. A personal financial advisor can provide you best strategy by analyzing your financial situation.
But there are some points which everyone should follow irrespective of their situation.
MAXIMIZE YOUR INCOME SOURCES:
Don’t rely on a single stream of income. Active income is always there; do try to add passive income as well.
PAY YOUR DEBT:
Try to pay your debt, especially credit card payments at earliest as they will increase your stress level. Do take full advantage of the grace period. Don’t let yourself trapped in circular debt because of delaying your payments.
 SAVING:
Follow the 80/20 rule. At least save 20% of your income every month. Saving should be your priority. There will be no emergency funds because you don’t have savings. This leads to no investment as well to generate multiple sources of income.
INVESTMENT:
When it comes to the investment of your savings, you have to be watchful.
Diversification: Don’t put all your eggs in one basket. Avoid trading in individual security.
Moderate Risk: Try to avoid high-fee and actively managed funds because they involve higher risk.
Cost-Benefit Analysis: Focus on low cost, diversified mutual funds that will balance the risk-reward ratio.
Financial Planner: Be careful while choosing the financial planner or advisor. Chose the one who works for your best interest. Do proper research before selection.
SUMMING UP
If you can manage your personal finance. The motivation for living a healthy and happy life will ultimately increase. As your financial planning executed successfully, you would feel the difference. You can have a stressful life because of unmanaged personal finance.
Concluding the topic with a quotation on personal finance by Burton G. Malkiel, A Random Walk Down Wall Street.
Put time on your side. Start saving early and save regularly. Live modestly and don’t touch the money that’s been set aside.

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