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Personal Finance

1. Definition of Personal Finance

Personal Finance means the financial decisions which an individual requires for his personal or family expenses keeping in mind about the savings and spending of his monetary resources keeping in account various needs, financial risks and future life events.The individual considers his or her needs with a various range of investments in either banking products or insurance products, investments, income tax management, retirement planning, money management, estate planning, children education and savings for future. Individuals basically look for the advice from various financial planners if needed or they even invest their money according to the risk they can take either in the Share market or in the other investment options available in the market like insurance products.

The major part in personal finance is planning,  it is required to be done by every individual to manage its capital to meet his/her financial goals and the needs.

Financial Planning basically involves 5 different steps which are:

1. Financial Assessment: An individual’s financial situation is assessed by analyzing the individual’s income statements (including the income, savings, and expenses) and the financial balance sheets. A personal balance sheet includes the personal Assets (car, home, luxury items, banking details) and the Liabilities (Debts, loans, credit cards) of the individual.
2. Goal Setting: Financial planning involves analyzing the current financial position of the individual and predicting the short-term and long-term requirements. It can be better understand with an example, say a person’s short term goal would be saving for buying a new iPod, whereas a long term goal would be buying a new house till the age of retirement.
3. Plan Creation: The financial plan details how to accomplish and fulfill the desired goals when they will be needed. It could include, reducing the current expenses, making investments in stocks, real estate or bonds and increasing the employment income.
4. Execution: Execution of financial planning requires discipline and persistence. Individuals can take assistance or advice from professional available in the market such as Chartered Accountants (CAs), financial planners and investment advisors.
5. Monitoring and reassessment: The financial planning is a dynamic process which requires a regular monitoring and re-evaluation.

Personal Finance is an important aspect of one’s life. Therefore, it is necessary to have a correct attitude and discipline in managing the money which one have.