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 about personal finances, an individual must focus on making an optimal utilization of his money resources. Not only he needs to meet his present financial requirements but he must also look into future expectations. And while making a balance between these two factors, he must take logical decisions that suit to his personal goals of investing his resources into banking products, stock markets, mutual funds, bonds, insurances, retirement schemes and physical assets.
Personal finance management is an impossible idea without a perfect financial planning in place. Financial planning is a dynamic process that needs monitoring, revaluation and remodeling in keeping with the changes on 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. Income statement is a list of an individual’s income and expenses whereas balance sheet enlists the personal liabilities and current value of personal assets like house, cars, bank account, 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 of expenses, increasing income or investing in real estate or stock market.
Plan Execution:
Executing a plan is as important as making of it. To realize a financial plan, you need to be disciplined as well as patient too. 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 passage of time, it needs some adjustments and you must do these in accordance with your changing requirements that may be highly influenced by change in income standard, lifestyle and economic scenario.
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