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Personal finance involves using the basic principles of finance to manage ones money by keeping a record of income, budgeting, saving, investing and managing financial risks for example. After the 2008 financial crisis, there was a massive shift in focus from consumerism to saving and investing. According to government data from November and December 2008, consumer expenditure fell by 0.8 percent and 1.0 percent respectively - as personal income shrunk by 0.4 percent and 0.2 percent.
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Budgeting: Determining the percentage of personal income should be spent on purchasing and consumables and how much should be saved. This takes into account necessary expenses like childrens education. Insurance coverage planning. Saving and investing in financial markets, including forex, stocks, bonds and commodities. Minimizing tax obligations and filing tax returns. Social security or government benefits and retirement goals. Loans such as consumer loans and credit card loans.
Cash Savings account and other Checking account Any other bank account or money market accounts
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Any assets or investments owned such as stocks and shares, bonds, mutual funds, ETFs, options, futures,currency, forex, commodities or alternative investments Certificates of deposits (CDs) Any property or real estate owned Home inventory value, comprising of valuable home contents Valuables like jewelry Financial liabilities may include:
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Mortgage Car loan Education loan Personal loan Home loan Credit card loan
Banks are the easiest source of obtaining and maintaining cash. People can deposit their savings in banks and receive interest on the saved amount. People can obtain short-term loans on an ad-hoc basis through credit cards. However, the interest rate on credit cards is typically very high. People can also obtain long-term loans from banks by pledging an asset as collateral. When interest rates come down, is a popular activity Home Loans: One can obtain loans to buy a home by keeping the property as collateral. Protect yourself and your loved ones by insuring against unforseen circumstances. Investing is an important way of supplementing the regular income stream. Investment choices may range from safer options, like banks accounts and mutual funds, to more risky ones, like the stock, real estate and commodities markets. It is also important to contribute to the employer-sponsored retirement account.
Managing Expenses
Here are some simple steps to have greater control over your personal finance:
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Create a worksheet and divide the annual expenditure into months and days. Keep a track of all expenses. Focus on curbing expenditures that are going against the plan. Save for emergencies. Pay off credit card loans before other loans, since credit cards have the highest interest rates. Setting financial goals and meeting them within a specified period underlines the role of personal finance.
called a loan in the form of a security. Common stocks: Common stocks are the ordinary shares held by the public in the corporation. The stocks that can be repurchased are known as treasury stocks. These stocks are the last in the liquidity line. They receive their dividends after the preferred stockholders. IPOs: The Initial Public Offering is the first sale of the common shares of an organization in the public stock exchange. When the shareholder sells the shares then it is called the secondary offering which occurs in the secondary market and earns the shareholder profit or a loss. DPOs: This is the Direct Public Offering of a company directly to its employees and customers. The DPOs are less costly in comparison to the traditional underwritten offerings.
Investing tools Money management tools Retirement tools Spending wisely toolsEach of the aforementioned tools may be discussed in detail under the following heads:
Investing tools
Investment in stocks: The Kiplinger's stock finder is a personal finance tool that helps in the investment in the right kind of stock. Here the investor is required to provide certain information regarding the stock criterion he is opting for and mention its value. By simply clicking on the search button, he can get the list of the stocks matching the specified criteria. Investment in funds: The Kiplingers mutual fund finder is another personal finance tool that helps to invest in the proper mutual fund. The investor has to select the type of stock that he wants to invest in and then select the appropriate performance criteria. After this, simply by clicking on the search button one has access to all the mutual funds that suit his needs. The Kiplingers mutual fund finder also helps to find
the right on line financial broker. It also helps to determine the time when the individual would sell the fund and invest money elsewhere. Investment in bonds: Just by filling in some information in the web one can find which type of bond would be most suitable for the investor, whether the investor should opt for a tax exempt or taxable bond. It also calculates the return if the bond was to be sold then.
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Retirement tools:
The retirement income calculator helps to find which source of income would yield the maximum retirement income. It would help to calculate the amount of income that social security will provide.
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Assessment: The financial condition of an individual can be gauged by formulating balance sheets and income statements. The personal balance sheet calculates the assets on the one hand and liabilities on the other. Assets include car, house, stocks, and bank account. Personal liabilities include credit card debt, bank loan, mortgage etc. Information regarding personal income and expenses is listed under the personal cash flow statement. Goal setting: After having done a proper assessment of the financial situation, an individual can set up long term as well as short term goals. Constructing a plan: Once the goals are set, appropriate strategies should be formulated in order to fulfill the goals. This could be achieved by curtailing unnecessary expenditure or by expanding the income level by investing in stocks, real estate or other interest earning assets. Execution: For proper implementation of the financial plans individuals lack patience and perseverance and hence seek professional help from financial planners, investment advisors and lawyers. Monitoring and reassessment: The financial plan of an individual should be monitored from time to time for reevaluation. The personal finance planning helps us to understand whether our financial decisions have any impact on other financial decisions. If they are affecting any short term or long-term life goal then we can revise our decisions.
A detailed net worth account should be maintained. The net worth account contains the following.
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Income data :It contains information on the salary, self-employment, alimony or any other income of each earning member and the family as a whole. Asset data: The asset data contains information of date acquired, ownership, current fair market value and encumbrances of the checking account, savings account, money market account, personal residence, other real estate, savings bond, stock, other bonds, fixed income securities, retirement plan, royalties, mineral interest and otter investments, business interest, jewelry collection, properties and notes receivable.
Liability data: This contains information on the date incurred, original amount, current balance, maturity date and interest rate of consumer credit, auto loan, home mortgage, personal loan, business loan, alimony and other loans.
Insurance Information
Information regarding the amount of insurance required should be determined for personal financial planning. One should list all the current insurance policies along with their coverage. Detailed information of self, spouse and child availing the life insurance policy should be kept on record. There are different types of insurance policies catering to different needs. They are:
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Health Insurance Policy Property Insurance Auto Insurance Savings and Investment Planning For any savings and investment planning one must determine The level of risk tolerance and Consider whether he has diversified his portfolio. Estate Planning Another important component of personal financial planning is estate planning. This is a method of taking out an inventory out of the assets and making a will or establishing a trust. This aims at minimizing tax liabilities.
reminders for making due payments. There is an option for monitoring the expenses of children.