Applying financial principles to a person’s or a family’s financial decisions is known as personal financial management. It covers how individuals and families collect, dedicate, save, and spend money over time while considering several financial risks and potential life events. Personal finance includes checking and savings accounts, credit cards and consumer loans, stock market investments, retirement plans, Social Security benefits, insurance, and income tax management.
The critical focus of personal finance is financial planning, and a dynamic process needs continuous assessment. Typically, there are five steps:
Contents
Assessment.
The personal financial situation can be assessed by preparing simplified versions of balance sheets and profit and loss statements.
Set goals.
The goal is set to meet specific financial requirements.
Make a plan.
The financial plan describes how the goals can be achieved. For example, this could be cutting unnecessary expenses, increasing company income or investing in the stock market.
Execution.
Realizing a personal financial plan often requires discipline and perseverance. Many people get help from professionals such as accountants, financial planners, investment advisors and lawyers.
Monitoring and reassessment.
Over time, the personal financial plan should be checked for possible re-evaluation and adjustments.
How do you manage your debt?
- To put it simply, debt management is the act of managing debts. It can also refer to a credit counseling service that combines your unsecured debt into a single monthly payment that is then forwarded by the credit counseling service to your creditors.
- One of the many options available to consumers for getting their credit card debt under control is debt management.
- Customers can attempt to handle their debts independently.
- Financial experts advise consumers to keep track of their monthly spending to pay off their various debts and for necessary living expenses. Before making more radical choices, they can find ways to reduce the cost of luxuries and other purchases by doing this.
Basic Rules for Budgeting and Money Management
Most families have far more money than they realize. The ones who get the most from their money have learned how to manage the money they have very well. A plan for spending money is called a budget. You, as a member of a family, share in the money spent for food, shelter, clothing, medical care, education, and recreation in your family. Knowing how much thought and planning often has to be done to provide for the family’s basic needs and the individual wants of each member is essential. Each family must decide precisely how much planning it wants to do. However, there are practical steps that any family can follow for this purpose.
- Step 1. Decide whether to divide the budget into one week, two weeks, or one month. Most people find that the time between paydays is the best budgeting period.
- Step 2. List all fixed expenses. Include every bill for which the exact amount is known in advance, such as payments for rent, mortgage, insurance, the car, and any other installment purchases.
- Step 3. List all regular living expenses for which the amounts vary. Estimate how much each costs during a pay period. Accurate total estimates will require time and experience since the amount spent on living expenses depends on how much care the shopper shows and the time of year it is.
- ( For example, food costs can be kept down by the person who shops and cooks wisely; more water is used in summer, and more fuel and electricity in winter. The cost of clothing and its care can be spread over the year instead of spending large amounts in the fall and spring. The homemaker who knows what to look for in selecting clothing has a wardrobe plan that prevents unwise purchases, can sew, and will need less money than another person. )
- Step 4. List any expected major expenses too large to be paid in a single pay period. Decide how much should be set aside each Payday to meet such expenses when they occur. Taxes are usually estimated in advance, and enough money is saved to pay them. Home appliances and furnishings can be bought with savings.
- Step 5. Total all expenses. Compare this to the total family income for the budgeting period. If the expenses are too high, look for ways to cut them. If money is left, some of it should be set aside regularly in an emergency fund and some in a savings or investment program.
- Step 6. Use a budget book or make a chart. Please write down the family’s plans for using its money. In the following weeks and months, compare this budget with what is spent and make any necessary changes.
Even a reasonable budget will help the family control spending if all family members cooperate. Young people who get experience in sound money management as they grow up can work out a family budget of their own efficiently.
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