We need to understand the most common and important aspects of individual financial management.
What is Personal Finance?
Personal finance is a way of processing to manage and plan personal financial activities.
Known as income spending, investing, protection, saving, generation. To manage personal finances can be categorized as budgeting or financial plan.
Let’s focus on the areas of personal finance:
The most important areas of personal finance are income, saving, investing, spending and protection.
Income is the source of cash amount inflow that an individual receives on monthly basis, later uses to support themselves or their family etc. This is the first step of our financial planning process.
The common sources of income are:
- Hourly wages
An individual can use spend, safe, or invest through the sources mentioned above as they all generate cash. This way income can be considered as our first step towards the personal financial roadmap.
Spending considers as all kinds of expenses, an individual can make – related to buying or purchasing and services or anything that is consumable for example: not an investment.
Spending has two categories:
- Cash: To pay on the spot for anything you purchase on hand.
- Credit: To pay for anything but later – like borrowing money.
The common sources of spending are:
- Mortgage payments
- Credit card payments
The listed above expenses can all reduce the amount of cash any individual has for saving or investing. The individual has a deficit, if the expenses are greater than their own income. Just as generating income is very important, managing expenses are too! And it’s a face people have highly control over their discretionary expenses than their income. For good personal finance management good spending habits are critical these days.
Excess cash that is retained for future investment or spending is known as saving. If anyhow there is a surplus between what an individual earns as an income and what they spend, the difference between this can be calculated towards savings or investments. To manage saving is the most critical and most difficult areas of the personal finance management.
The common forms of savings include:
- Saving bank account
- Physical cash
- Money market securities
- Checking bank account
There are still people who try to keep some of their savings to manage their cash flow in the short term and to keep the difference between their income and expenses. Mostly having too much of savings can be noticed as a bad thing since it can earn little towards the no return compared to investments.
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Investing can relate to purchase of assets, expected to generate a rate of return, with a hope within that an individual will get back money more than they actually invested. Investment is a risk in its own way, not necessary that all the aspects will come to a good end by producing a positive rate of return. That’s when we see the relationship between risk and return
Common form of investing includes:
- Mutual funds
- Real estate
- Private Companies
Investing is the most complicated areas of personal finance, also one of the areas where people get some personal advices. Huge differences in risk and rewards between the different investments, Most of the people do seek help in this area – as it is about financial investment.
To guard against an unforeseen and adverse event with a wide range of products is known as personal protection.
The common protection products include:
- Estate Planning
- Health insurance
- Life insurance
This is area is also where people mostly seek personal financial advice and it become quite completed. A whole series of analysis needs to be done to properly asses any individual’s insurance and estate planning needs.
The Progress of Personal Finance:
Having a good financial management is to have a solid plan and sticking by it. The above mentioned areas for the personal finances can be wrapped up into a budget or a proper financial plan.
Such plans are mostly prepared by personal bankers and investment advisors – working with their clients or customers to understand their actual needs or goals and develop a course of action.
Main components of the financial planning progress are:
- Plan development
- Monitoring and reassessment
Personal Finance Budget:
An individual can prepare a budget or a financial plan for giving the best shot at achieving your personal and family goals. It can help to manage income, expenses, savings and investments.
Important note: Always consider a consultant a professional advisor before making any financial or investment decisions.
Careers – Personal Finance:
There are a lot of wide range of careers that can relate to personal financial management and advices. If anyone is passionate for the topics mentioned in this article – you might want to consider a career in the industry.
Important careers include:
- Wealth Manager
- Insurance Advisor
- Financial Planner
- Mortgage Broker
- Tax Advisor
- Personal Banker
- Investment Advisor
- Estate Planner
Some of the most important jobs on the corporate side includes investment banking, private equity, and corporate development.
I hope this article was helpful.