Finance is the science of money management and is divided into three sub-categories: public, corporate, and personal finance. Public finance is basically the collection of taxes and how these taxes are used. Corporate finance deals with the transactions in which capital is made to create or develop businesses. Personal finance is defined by all financial decisions of an individual, which include budgeting, insurances, mortgages, debt and savings.
Many of us are running their own households, but how many of us actually have the appropriate information to make the most rational financial decisions? We often make decisions that seem appropriate or rational at that moment but are, in fact, manipulated by circumstances or misinformation. Personal finance doesn’t only deal with the financial products for personal use such as credit cards, insurances, and mortgages but also includes personal banking, including our checking and saving accounts.
Did you know that before personal finance was developed, family economics and consumer economics were taught in colleges as part of home economics for over 10 years? At first, this field was neglected by male economists as “home economics” appeared to be the purview of home-making women. However, after years of research, it was concluded that we (both men and women) don’t always make the most rational financial decisions and the market doesn’t automatically correct any imbalances in the economy. Therefore, personal financial education was necessary for an individual to make sound financial decisions. Before 1990, many economists and businesspeople paid little time to sort out their personal finances. However, now, several universities have started to offer financial education programs for graduates and undergraduates.
Financial planning is the key component of personal finance, which comprises of five basic steps:
You will have to estimate your current financial position by looking at the expected cash flow and your current savings.
You can set multiple short-term and long-term goals that you can achieve financially.
You have to create a detailed financial plan to accomplish your goals.
If you create a plan, you’ll have to follow it to the end. This often requires discipline and determination. If you have trouble following your financial plan through, you can take help of various professionals such as accountants, lawyers, and investment advisors.
As time passes, your financial status may get better or worse. Reassess your plan according to your financial position at that time.
If you want to be financially secure at the time of your retirement, you’ll need a secure financial plan throughout your life. Don’t hesitate to use the help of professionals so that you can maximize your life savings and retire to a financially secure life. By having some knowledge of personal finance and by making a secure financial plan, you can secure the future of your family and improve your living standards. You’ll also be able to build assets that you can liquidate