Have you ever curious how rich people became rich?
Well there is one quality is common among them and that is wealth management in simple words the discipline approach towards money.
So we can say that the saving, investing and budgeting all expenses and preparation for future financial challenges is called personal finance.
Firstly We human beings are never satisfied with small we always want more and more and money is not excluded from that.
In addition saving money not only gives you confidence but also the compounding factor in investing is very much interesting.
Here is a quote from Benjamin Franklin you should note:
Beware of small expenses. A small leak will sink a ship.
What’s in it for you?
- Components of personal finance
- What is personal financial planning
- How to construct a Financial plan
- Personal Loan finance
Components of personal Finance
Personal finance needs a source of inflow of cash that an individual may earn from single or multiple sources of activities.
You also know when there is no source of income one can’t proceed further to manage his or her finances.
So first goal should be form different source of income to manage his or her Families’ basic amenities.
Savings & Investment:
After income you’ll surprise why I have taken savings & investment, for instance budgeting should be first concern.
But I see it from a different perspective now give a thought to it everyone budget first then save and invest but in that way you only have a limited amount of cash left and it is far from discipline.
But if we first set an amount that has to be save every month then we will control our expenses on the left amount after savings.
Now consider this example; let Monthly income is 40,000
Without specific Savings, Expenses may be 20,000
30,000 and 25,000 in different months that means our savings are not constant that can hamper our future goals
Firstly Savings fixed 20,000 every month
Secondly we can’t have extra money to spend more and we can discipline our expenses.
In short we have a specific amount saved this amount we can invest in Bank Fixed Deposits, Liquid Funds, Mutual funds etc. according to our capacity of Risk management.
As you know you can also invest in Assets like Gold and Real estate as these assets liquid easily.
Therefore Investment is that strategy that has a compounding effect you’ll surprise to see that your money is doubled even tripled in quite a few span of time.
Budget is the wholesome part of expenses that is to plan out of income.
However this amount of money is required to fulfill the requirements of family members and their education, health amenities and desires.
Further Budgeting helps to distribute enough money for specific requirements like children education medical expenses clothing house rent electricity bills water bills shopping food and travel expenses.
It is well said that “
Budgeting isn’t about limiting yourself- it’s about making the things excite you possible”
It is nothing but a well allocated plan towers household expenses.
Well I think there should be always a backup plan in every perspective of life so why shouldn’t your Personal Finances.
Insurance is that help which would support you with finances whenever there is an emergency.
May God never do it but give it a thought what if there is an accident or pandemic Like Covid-19 at present or so on natural disasters it is better to be secured enough inside the shield if an insurance policy.
In this situation the Insurance policies are like angels they look after all the expenses.
There is multiple policies in the market but you should consider the police where the Coverage is vast and premium is least i.e. health insurances, life insurances etc.
However If you want to learn more about insurance policies you can refer to this
What Is Personal Financial Planning?
Financial planning maybe defined as the planning that is done keeping in mind future goals, premature death, deductions on tax liability, retirement funding etc.
Financial planning stress upon your future goals and the present investment that is needed in order to achieve that and current execution to be done on your personal finance.
People hardly understand this as they only believe to invest only to save tax liabilities but planning is a very wide in its scope of opportunities.
This help to prepare for any future circumstances or emergencies.
According to Dave Ramsay,” You’ve got to tell money what to do or it will leave.”
How to construct a financial plan:
- Evaluate current situation
To make a better financial plan first you need to understand your current financial sates and where you are aspiring to get to.
This can give you an understanding of your goals and their risk appetite. Your current status will define your capability to implement your financial plan.
- Set financial goals
The financial goal is a matter of fact it differs from person to person. It depends upon his desires and wants from life.
Moreover this can be building emergency fund, buying estates, achieve financial freedom and so on.
This is the center of financial planning around which all strategies done.
- Actions to be done
To achieve financial goals there are certain actions to be done. It varies from different perspective of people according to their goals.
But the end result is same; I mean everyone wants to achieve their goals.
I can say that you may not be in a very good status to begin with but your actions can take to that place where any of your goals seem to be minute.
- Implement financial plan:
A plan without any implementation of it is nothing but a wish. After what actions to do to achieve goals the execution is very important.
This is where everyone fails to perform its obvious everyone desires to rich but some of them actually work on it to achieve.
- Observe mistakes and Revise:
Everyone sit back after implementing a financial plan but you need to understand that to achieve goals the plan needs constant observation and monitoring.
As you never know when which plan didn’t make up to the expectation and every year changes so quickly is hard to imagine.
So the constant observation can make you understand the current need of changes in the plan so that you can improve it and revise it for better results.
Personal loan finance:
Loan is a matter of concern when we are talking about personal finance.
In my opinion there are two types of loans; good loans, bad loans. Like home loan the interest rates are really law and that too they attract tax deductions what is more good than this, isn’t it.
But then there are education loan and personal loan and credit card repayment delay charges these loans come with a interest rate almost 15-40% category.
In conclusion I can say that Financial planning is that concept that everyone should acquire; it gives you discipline in life as well as better position in society.
Moreover financial management is that life skill which everyone should possess and you can better mange your expenses and be in discipline.
Budgeting, mortgages, investments, retirement planning, tax and estate planning are the types of personal finance.
As personal finance make you understand how much you earn what are your expenses and help you to budget accordingly so it is very important.
Financial planning makes you understand why you need to achieve your goals and how they impact your other aspects of life and finances.
It means the discipline point of view towards money management.
Personal finance make you live below your means but in long term it’ll give you a better lifestyle to live.
A better planning of your finances can help to improve your financial condition.
Liquidity ratio, savings ratio, Debt to asset ratio, Debt serving ratio, inflation hedge ratio are some of the personal financial ratios you can consider.
Personal finance is needed to achieve your financial goals.
Well there are no shortcuts you should refer to above given section.
It differs from people to people according to their desires in spite if that savings are important that Income.
You can learn personal finance on different sites as well as some of my blogs is there you can just browse them.
According to your spending pattern and risk appetite you can manage your finances.