Personal finance
Personal finance refers to the entire universe of financial activities performed by a person as opposed to a business. Personal finance styles are as unique as the individuals which use them. Ideally, personal finance will consist of one or all of the following factors:
Budget – A budget is a plan for allocating income. The more comprehensive such a plan is, the more difficult it is to maintain, but at the same time, the easier it is to see spending patterns or problems. Often, personal finance planning and preparation of a budget looks only at the expenditure side of the equation and does not monitor the income as well.
Income – Income consists of that which is accessible and that which is not accessible or is not immediately accessible. In tracking personal finance, it’s important to remember that some income will not be realized until retirement age, or until an annuity such as insurance matures.
Expense – The major part of income application in personal finance exercises will go to expense; not only day-to-day expense such as housing and utilities; but longer term expense such as property tax payments which occur once per year. Personal finance spending plans seek to identify and prepare for all expense whether short-term or long-term.
Savings – Savings is another form of personal finance planning for income allocation. There is savings for projects such as purchasing a new computer system, and savings to maintain a cushion or emergency fund in the event of financial catastrophe of some sort. These funds should be relatively liquid, i.e. accessible within hours to a day or two without an undue loss of capital such as early cash-in penalties. Many people choose to allocate a portion of their income to save for a down payment on a house or for the college fees of their children.
Investment – This personal finance component is the one many people have the most problem knowing what to do. Understanding your personal income and expenses and even regularly placing money into savings so that big ticket items can be paid for in cash is common. However, most people don’t know where to begin to invest, so they don’t. Or they may spend money from savings or even expense categories on unwise choices, thinking they are investing for the future.
A good financial planner, who does not have a conflict of interest in helping you to prepare your personal finance plan, can be invaluable.
by Nathan.Smarty 19 years ago