Personal finance implies to decision making by an individual or a family in order to fulfill necessary financial obligations. Personal finances are closely associated with making a budget plan that can help an individual or a family unit to achieve their financial goals in every aspect including expenditure, saving and investment. If discussed in a broader scope, managing your personal finances also means taking into account the financial risks and returns that result from your decision of making investment.
While considering a plan for personal finances, an individual must focus on making an optimal utilization of his money resources. Not only he need to meet his present financial requirements but he must also look into future expectations. While making a balance between these two factors, he must make logical decisions that suit to his personal goals of investing his resources into banking products, stock markets, mutual funds, bonds, insurance, retirement schemes, and physical assets.
Personal finance management is an impossible idea without perfect financial planning in place. Financial planning is a dynamic process that needs monitoring, revaluation, and remodeling in keeping with the changes on the economic front both at home and abroad. Some key components of financial planning and without which personal finances are useless are as follows:
Assessment of Financial Situation:
In-brief financial statements that include a person’s financial statements and balance sheets are required to make an assessment of one’s financial situation. An income statement is a list of an individual’s income and expenses whereas a balance sheet enlists the personal liabilities and current value of personal assets like houses, cars, bank accounts, stocks, etc.
Setting a Goal:
Both short-term and long-term financial goals are important. Without setting a goal, you can never make a plan that serves your purpose.
Plan Making:
A financial plan details the ways that get you closer to your pre-set goals. It may focus on cutting back on expenses, increasing income, or investing in real estate or the stock market.
Plan Execution:
Executing a plan is as important as making it. To realize a financial plan, you need to be disciplined as well as patient. You may seek advice from a personal finances planner, investment advisor, or even a lawyer.
Monitoring & Evaluation of Plan: You must take a dynamic approach towards financial planning. Regular monitoring and assessment are important. With the passage of time, it needs some adjustments and you must do these in accordance with your changing requirements that may be highly influenced by changes in income standard, lifestyle, and economic scenarios.
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