What is Personal finance?
The process of planning and managing personal financial activities which include the source of income generation, the expenditures to be incurred, the savings, investing in different ways as well as protection of finance. The process progresses from the generation of income to various expenses. The plan regarding personal finance should constitute various factors such as financial status, financial goals, short-term and long-term needs, and savings for the future. It can be said that to work efficiently and effectively a proper plan regarding finance should be set up. Failure of the same would result in inefficient working and minor growth for the organization or any individual as a whole.
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Aspects of personal finance
While drafting a plan regarding personal finance one should always consider the following aspects of the finance:
The source from where is received by an individual or an organization to support themselves as well as their family. It is also used to expand the working level of an organization. Income is the primary need of the predominance.
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Some common sources of income are stated below :
- Daily Wages
The expenses that an entity or an organization has to incur to acquire certain goods or services is known as an expenditure. Some of the common expenditures that are incurred frequently are :
- Food expenses
- Travel expenses
- Entertainment expenses
- Interest on loans
The amount of money that is stored for future purposes. The amount that is retained can be for several reasons such as higher education for children, old age assurance, future uncertainties, etc.
It can be estimated by calculating the difference between total income and total expenses.
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Some common modes of savings are:
- Market securities
- Savings bank account
- Keeping hard cash
- Various policies of the banks and government
This is another important aspect of finance that deals with the regular purchasing and selling of assets to gain a reasonable rate of return. This mode entails risk. Thus it can be said that risk and return go hand in hand.
Common forms of investing:
- Mutual funds
It is a method through which one can take preventive steps if any unforeseen adverse event takes place. It requires professional guidance to acquire the right action for the said circumstances.
Some of the common forms:
- Life insurance
- Health insurance
- Marine insurance
- Estate Planning
PROCESS OF FINANCIAL PLANNING
A proper financial plan should be formulated under the guidance of professional experts such as bankers or investment advisers. The budget should be followed diligently which would further improve the financial stability and enhanced status of the organization or entity as the case may be.
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