The Six Areas of Personal Finance
The Six Areas of Personal Finance
Personal finance is the application of monetary decisions to a family or individual. Personal finance addresses the way people or families obtain , budget, save and spend monetary resources, taking into account financial risks and future life events. Personal finance includes bank accounts, credit cards, loans, stock market investments, retirement plans, social security benefits, insurance policies and income tax management.
The major components of personal finance are assessing your personal financial situation, setting goals, creating a plan, executing that plan and monitoring and reassessing your plan. When assessing your personal financial situation you will want to look at balance sheets, income statements, personal assets, personal liabilities and income. It is important to set goals for yourself like retirement goals, and short term goals like buying a home. Setting several goals is a good idea. Creating a plan includes reducing your unnecessary expenses, increasing your income, setting a budget or even investing in the stock market. Executing your plan requires discipline and perseverance. Getting assistance from professionals like accountants, financial planners and investment advisers is advisable. Keep monitoring your plan and make adjustments as necessary.
Many people set goals like paying off debt from student loans or credit cards, saving for college for their children, retirement planning, and estate planning.
There are six areas of personal finance planning; financial position, adequate protection, tax planning, investment and accumulation goals, retirement planning and estate planning. Financial position is understanding a persons resources by examining their household cash flow and net worth. Your net worth is your personal balance sheet which is calculated by adding up all a of a person's assets and subtracting all their liabilities. Adequate protection is the analysis of how protected a person or household is from unforeseen risks like liabilities, property, death, health, disability, etc. Some of these risk are self-insurable while others require the purchase of an insurance contract.
Tax planning is planning for the single largest expense in a household, income taxes. Investment and accumulation goals is planning on how to accumulate items with a high price like a home or car. Retirement planning is the process of understanding how much money will be needed for retirement and planning to obtain this money. Finally estate planning is planning for the disposition of assets when a person dies.Learn more about personal finance and other finance related questions.
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