Personal Finance is the process of applying financial principles to the financial decisions of a family or an individual. It addresses various aspects of finance such as creating a budget, ways to save, possible investment options, financial risks, and how to spend the money available over time.
Personal finance and planning is no longer the luxury of the rich, but rather for every person who aspires to be financially independent. This is increasingly becoming a vital part of life. Preparing for one's future is essential and there is never a good time to start like today.
To most people, Personal Finance is like speaking a language from another planet such as mars, and they have no idea where to begin. It can be overwhelming when terms such as budgets, balance sheets, and income statements are spoken. However, this should not worry anyone, because most of us engage in personal finance decisions without consciously knowing it. For instance when making decisions about where to live, which car to buy, where to take your children to school among others. These decisions have an aspect of finance in them.
There is an emergence of personal financial advisors in the recent past, who have come up to assist people who need coaching or financial advice for a fee. They come in handy especially for those of us who don’t have a strong financial background and require help.
Whether you choose to do it yourself or procure the services of a personal finance advisor, there are some basic things that one needs to look at. The order doesn’t matter as these vary with the approach from one person to another or from one advisor to another.
First, one needs to look at their current position financially. That is take an honest look at what you owe and what you own. Then proceed to set the financial goals both in the short term and in the long term. You can consider the kind of lifestyle you want to have for yourself and your family in the future. Lastly and of much importance is to come up with a plan or strategy that will enable you to achieve the financial goals you have set and motivate you to follow them through. This could include saving and investing a portion of your income for instance.
Another aspect that one should consider is tax, depending on which country you live in. Tax is a major expense, however, most people never give it a second thought, therefore ending up missing out on legitimate opportunities to reduce it. Most tax regimes have some incentives or relief given to the taxpayer to encourage them to save or to invest in certain things. For example, payments made towards retirement or pension, life insurance, or specific purchases such as buying a home through a mortgage. It is of benefit to you to check and investigate the possible savings available to you from a tax perspective in your country of residence.
Whichever way you look at personal finance, every one of us needs to take charge of our finances by avoiding common pitfalls that many have had to endure, because they never took time to consciously look at their finances. Finally, the question that begs an answer is what you are going to do about it. Will you leave your finances to fate or will you take charge of them today? The choice is yours.
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