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Personal finance is a subject that is of great interest to almost anyone who holds money in their hands. Even children are interested in personal finance even if they don’t know that they should use that terminology to define this interest. From the minute they get that first allowance or pocket money, they have to start learning how to spend and save up for what they want, maybe this is where many of us learn our financial habits be they good or bad, in childhood and perhaps these habits, stay with us. It is possible that we also learn about managing personal finances from our primary caregivers and some of their attitudes rub off on us.

Everyone knows that money is valuable and the more of it you can earn and keep the better off you will be financial. We all need to know how to manage our money so that we can get the maximum usage of the things we need and so that we can save as well. Major personal financial goals for most individuals often include a retirement package, even if your employer provides one it is always good to have a separate personal retirement plan for yourself as retirement money can never be too much. Another popular goal, especially for those who have completed college with the help of government aid, is to pay off their student loans, all these goals require that a person understand their personal finances.

Personal finance can, therefore, be summarized as the financial decisions an individual or a family makes, it usually involves assessing what is earned and making a budget, deciding how much to save and how much to spend. You cannot hear the term personal finance without sooner or later encountering another term called financial planning.

 

What is financial planning?

It is a very broad term that covers a lot, it, of course, involves an assessment of the individual’s finances, deciding what financial goals they want to achieve, coming up with a strategy, carrying out that strategy and then finally monitoring how well the strategy is working over a period of time. Let us take a look at these five steps in more detail:

  1. Assessment of finances includes a complete review of the individual’s paycheck, bank accounts, credit cards, loans, mortgage, rent and personal needs. A budget must be created and all the necessary bills added up and subtracted from a person’s earnings to see how much is left for investment and savings.
  2. Setting goals often help to focus and target a financial plan. Maybe the individual wants to save towards a higher education, a house, a car or retirement. A specific dream makes it easier to stick to the goal at hand rather than just blindly saving towards nothing. Goals must have an achievement date, this gives the person a feeling of going forward every week or month when money is put towards that financial goal.
  3. Creating a strategy for goals is perhaps the most crucial part of financial planning, if there are holes here then the whole plan will fall apart, the strategy must be realistic and within the person’s financial capability, no fantasies or illusions can show up here, everything must be concrete, realistic and affordable. This means that the strategy must not pull the person’s financial belt so tight they cannot find room to breathe in order to maintain their daily expenses.
  4. The strategy must be carried out or executed in a timely and efficient manner this can include setting up salary deduction as this gives the person a hands-off approach to depositing the money for the execution of the plan. If it is not done this way it will require a high level of discipline and perhaps some help from a financial planner or accountant who will take charge of the execution of the plan.
  5. Finally, the plan must be monitored very closely to see if it is working and adjustments made to accommodate changes in the individual’s finances be they negative or positive. This is crucial especially if the strategy is for a long-term goal, adjustments may have to be made as inflation rises and the cost of living goes up.

As you can see a lot goes into personal finance and financial planning, if you can’t do it yourself then do not be hesitant in seeking professional help, in order to achieve your goals.

Author’s Bio – Simone Gillespie is a former corporate trainer. Now she resides in Palm Beach, Florida where she writes freelance articles online about things she loves including travel, personal finance, and parenting. You can find out more about her by visiting www.MakeMeChic.com.