Personal Finance Basics

What Is Personal Finance?

Personal finance is the financial situation of a person or family unit.  Personal finance deals with how much income a person receives, how much of this income is saved, how much is spent and how someone can plan for his financial future.  Some of the many components of personal finance are checking and savings accounts, credit cards, loans, investments, retirement plans, social security benefits, and insurance policies.

How Can You Plan For Your Financial Future?

In order to evaluate and take control over your personal finance you need to begin planning for your future.  

1.The first step in this endeavor is to figure out your personal financial situation.  Make a list of all of your personal assets (if you own house, a car, or a business) and of all your liabilities (any debt: student loans, credit card debt, or mortgage). Then create a personal income statement that lists all of the income you receive and all of your expenses.  It is a good idea to keep track of every single purchase you make for a month or two so that you can get a true sense of what your expenses really are and where you really spend your money.

2.Set goals for your financial future.  One goal can be deciding at what age you would like to retire and with how much money, realistically, you would like to have saved for retirement at that time.  Another goal can be to save for a down payment on a house and to calculate at what point you can begin mortgage payments and how much you can afford in a monthly payment.  One of the most common personal finance goals is the repaying of debt such as student loans and mortgage payments.  Figure out how much you can afford to pay each month towards this debt and calculate how long it will take until the debt is completely paid off.

3. Next, make a plan for how you will achieve your set goals.  You can decide to reduce expenses so that you can devote more of your income towards your goals, you can devise a plan to earn more money, or you can choose to invest some of your income in the hopes of gaining a profit on your investment.

4.Follow through with your plan.  Don't only plan for the future.  Actually act on your plan. This may be difficult at times but you will never succeed in reaching your financial goals if you do not actively work to achieve them.  Seek the help of an accountant or of an investment advisor if needed.

5. Keep track of your progress and your setbacks.  Make adjustments in your plan where needed and work around obstacles to continue towards your financial goals.

Article written by Nicole Sivan