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Personal finance is the application of financial principles to financial decisions made by a family unit or an individual. It addresses many aspects of financial issues such as budgeting, how to save, financial risk and how to spend available monetary resources over time.
In the world we live in today, personal finance and planning is no longer a luxury of the rich, but an essential part of life. Preparing for your future is essential and there is never a good time to start like today.
For many people, the idea of personal finance is like speaking a language from Mars to them, and they have no clue where to start. It can be surprising when it comes to terms like budget, balance sheet and income statement. However, this shouldn’t set off any alarm bells, as most of us get bogged down in personal finance decisions without even realizing it. For example when deciding where to live, which car to buy, where to take your children to school, among others. Somehow the factor of finance is involved in these decisions.
In recent times there has been a rise of personal finance advisors who have come to the aid of those in need of coaching or financial advice for a fee. They are especially useful for those of us who do not have a strong financial background and need a helping hand.
Whether you choose to do it yourself or seek the help of a personal finance advisor, there are some common basics that need to be taken care of. The order of these may differ from person to person or from advisor to advisor.
To begin with, one needs to look at their current financial situation. That is, take an honest look at what you owe and what you have. You then move on to determine your financial goals, both in the short term and long term. You can think along the lines of the kind of lifestyle you want to lead in the future. Lastly and most importantly, create a strategy or a road map that will help you achieve and follow the set financial goals. This could include saving and investing a portion of your income, for example.
Another thing that needs to be considered is the tax element, depending on the country you live in. Taxes can be a huge expense that most people never give a second thought to, thus they miss out on opportunities to reduce it. In most tax regimes, some incentives or reliefs are given to encourage the taxpayer to save or invest in certain things. For example, payments made for retirement, life insurance or specific purchases such as buying a home through a mortgage. It would be prudent to examine the potential savings available to you from a tax perspective.
Whichever way you look at personal finance, it is important for each of us to take charge of our finances by avoiding the common pitfalls many have never taken the time to consciously look at their personal finances. Are you going to leave your finances to fate or are you taking charge of your financial destiny today? the choice is yours.
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