Personal finance: this category of finance, deals particularly on an individual. How an individual source for his funds and the way he had to spend it or what he spent it on. A lot of people get business running to acquire money in other to take care of themselves and to also meet their dad to day basic or fundamental needs and wants. Shelter, food and clothing are the three basic needs of man which he can live without unless attained.
To get all these done, an individual found himself engaging in many finance work to get money. He can get money through investment which has its reward as profit. Personal finance deals with the individual income (revenue) and output (expenditure). How an individual hold his money either for speculative reason (to hold money to buy goods and services when there value reduce), precautionary motive(for unforeseen circumstances) and Transaction motive(held for day to day transactions) are all studied under personal finance.
The net worth of an individual which is calculated by subtracting the total assets from the total liabilities. According to the English dictionary, an asset is any property or object of value that one possesses while liabilities are amount of money that is owed to someone and must be paid back to the lender in the future such as tax, debt, interest and mortgage. Personal finance involves all decisions that affect the individual and household financially. Personal finance practices the habit of earning, investing, saving and spending. The matters faced by personal finance are the purchases of financial products like credit cards, mortgages, home insurance, life assurance, burglary insurance and various types of investment like buying of shares in a big or small corporation, investing in vehicle, investing on land. Personal finance also include banking.
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Personal finance has a purview of the individual or household financial activities. It studies how the households generate its income and also spend it. Personal finance helps an individual to have a financial plan which involves the position of the individual financial status, the long term needs of the individual as well as his short term needs and how plans are executed within the individual financial constraint.
Some important aspects of personal finance is the expected cash flow assessment, getting or paying for an insurance, savings and investment which is always there either for speculative, precautionary or transaction motive and also for retirement planning.
How do you plan your personal finance?
Some people, in fact, a lot of people that have been in workforce for years don’t have financial plan. Though, it is never too late to create your own financial goal. Here are some tips to follow to create your own financial goal.
- Writing out your budget is the number one and most paramount step in creating your financial budget. A budget gives you head up and how your daily or monthly income should spent.it serves as directorate that directs you on how you should live within your financial constraint. You can decide to make 30% of your income to go into savings and investment but you must make sure you always remove this 30% every time your income comes. The higher your investment, the higher your profit. I would preferred to tell you that investing is better than just saving. Make sure. Then you can allocate 40% for your home expenses while putting 15% in your social life. There is no need to put so much in social life as you would spend more having funs around unlike having fixed food down at home.
- Make sure you have precautionary motive of having money. Keep an emergency fund somewhere as you don’t know when problem will ensue. So it is advisable to always have an emergency funds kept somewhere. 10% can be allocate to this.
- Plan for your health finance. %5% is enough for this monthly.
- Limit the rate at which you depend on debt financing as at the end the liability will be more than your asset leaving broke at the end of the day and living your life in penury.
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All the tips listed above should be followed every day and every time the income comes in. other tips to take note of is the payment of tax, using of credit cards wisely, paying of bills and planning for retirements.