I am sure that all of you have a vague idea as to what is the meaning of personal finance. In the simplest of terms, it refers to finance for yourself. It is related to the ‘self’ and that is why the element of personal comes in. it may mean the payment you make for your education, or for buying any property or investment in insurance policy or any such related sphere. However, it does not only refer to what you spend but also includes what you are able to save for yourself and your family. In fact, saving for your retirement is also a part of personal finance.
- Financial position: First of all, you need to be able to understand your financial condition at the moment. You basically need to examine your net worth and calculate the household cash flows. For all those who do not know what net worth is, it means your balance sheets. You are required to add up all the assets under your control and then subtract all the liabilities. Household cash flows imply the expected income for a particular time period minus the expenses that you need to make for sure. This is how you can determine you final and true financial position.
- Adequate protection: This is one of the most important areas in financial planning. This refers to the ways in which you are equipped to be able to protect your household from any sudden problem. Risks can arise at any time without any prior notice. This, this is a reference to your readiness to face challenges and cope with issues at hand. There are a lot of professions such as athletes, entertainers and business owners who need to protect themselves against such instances. This also includes the insurances that you already have in your kitty.
- Tax planning: Paying tax to your nation’s government is a must. in fact, so says the law. Even if you feel that you are just letting go of your hard-earned money, there is nothing that can be done about it. If you are a defaulter who has been escaping the payment of taxes, then please note that legal action can be taken against you. Income tax is the largest expenditure of each and every household. The trick is how do you manage your expenses once this amount has been deducted from your account. You must be on the lookout for incentives that are provided by the government.
- Investment and accumulation goals: This refers to the big purchases that you need to make in life for which you actually need to save money. This can be anything such as buying property, paying for education or any other investment. This needs a lot of careful expenditure and planning so that you are able to achieve your goals as soon as possible. Though it is said that you must invest in shares and mutual funds, please note that these schemes are indeed subject to market risk and you must be careful before you take the plunge.