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What is personal finance.

Definition of Personal Finance

What is personal finance? It is the personal financial management that an individual or a family unit performs to budget, save, and spend monetary resources over time, taking into account various financial risks and future life events: how you master managing your money best!

When planning personal finances and periodic budget monitoring, the individual would take into account the suitability of various banking products (checking accounts, savings accounts, credit cards, and loans), insurance products (health insurance, disability insurance, life insurance, etc.), and investment products (bonds, stocks, derivatives, etc.), as well as participation in and monitoring of income tax management and pensions.

Personal finance is about managing your money. And it is one area of other finance disciplines: Corporate and public/goverment finances.

What are The Areas of Personal Finance Management and Budget Optimization?

Income

Income is the starting point of personal finance management and budget optimization. It is the entire amount of cash inflow that you receive and can allocate to expenses, savings, investments, and protection. Income is all the money you bring in. This includes salaries, wages, dividends, and other sources of cash inflow.

If you are an employee with a fixed income, then the monthly salary is your entire income plus other additional income. Meanwhile, if you are an entrepreneur, your income is salary from your company, dividends, profit shares, and others.

Saving

Savings is the income left over after spending, in a conventional way. But, current wisdom states that once you get income, what you have to do is set aside 10% for saving and 20% for investment first. Then the rest is for spending expenses.

If you are serious about becoming a successful businessman and investor, allocate 30% of your wanting budget percentage redirected to running a business and investing until the business can pay you off.

Everyone should aim to have savings to cover large expenses or emergencies. However, this means not using all your income, which can be difficult. Regardless of the difficulty, everyone should strive to have at least a portion of savings to meet any fluctuations in income and spending—somewhere between three and 12 months of expenses.

Beyond that, cash idling in a savings account becomes wasteful because it loses purchasing power to inflation over time. Instead, cash not tied up in an emergency or spending account should be placed in something that will help it maintain its value or grow, such as investments.

Investing

The investing involves purchasing paper assets, usually stocks and bonds, to earn a return on the money invested. You can also invest in businesses and sources of passive income. The portion of investing could be 10% of your income, or 30% if you take the percentage from the wantings budget.

Investing aims to increase an individual’s wealth beyond the amount they invested. However, investing does come with risks, as not all assets appreciate and can incur a loss.

Investing can be difficult for those unfamiliar with it—it helps to dedicate some time to gain an understanding through readings and studying. If you don’t have time, you might benefit from hiring a professional to help you invest and managing your money.

Protection

Being able to manage spending is a critical aspect of personal finance and budget skill. Individuals must ensure their spending is less than their income; otherwise, they won’t have enough money to cover their expenses or will fall into debt. Debt can be devastating financially, particularly with the high-interest rates credit cards charge.

The protection refers to the methods people take to protect themselves from unexpected events, such as illnesses or accidents, and as a means to preserve wealth. Protection includes life and health insurance and estate and retirement planning.

Having several sources of passive income and a profitable business that is running on autopilot is also a form of protection.

Spending

Spending is an outflow of cash and typically where the bulk of income goes. Spending is whatever an individual uses their income to buy. This includes rent, mortgage, groceries, hobbies, eating out, home furnishings, home repairs, travel, and entertainment.

How much will you spend for your needs? For your wants? You should know in advance before you spend all of your money.

What are the Benefits of Personal Finance Management and Basic Budget Mastery?

Short Term

  • Assess your spending habits
  • Budgeting made easy
  • Financial planning
  • Preparation for emergencies
  • Monitor your expenses
  • Bottom line
  • Reduce the debts
  • You can understand your money better

Medium Term

  • Improved standard of living
  • Increased security
  • Reduces stress
  • Automatic recording of your purchases
  • Improved money saving
  • Investing in assets
  • Retirement planning

Long Term

  • Achieving financial goals
  • Gives profits from investment plans
  • Budgeting can help with retirement
  • Financial security

What is a Case Study How Someone Achieved His/Her Personal Financial Goals?

Introducing the Woman and Her Financial Goals

Meet Kelly, a thirty-something woman living in the Midwest. She had been working in her field for the past ten years and was beginning to feel the financial pinch of living in an expensive city. She had a decent salary but found herself struggling to save for retirement and other long-term goals. With the help of an experienced financial advisor, Kelly decided it was time to make some changes in order to achieve her financial goals.

Kelly’s Financial Goals

  1. Building an emergency fund. Kelly knew that life could throw unexpected curveballs and wanted to be prepared with a cushion of savings in case something happened.
  2. Paying down debt. Kelly had accumulated some credit card debt over the years, and wanted to get it paid off as quickly as possible so she could save more money for the future.
  3. Saving for retirement. Kelly wanted to make sure she was setting aside enough money for retirement so she could enjoy her later years without worrying about money.
  4. Investing for long-term growth. Kelly also wanted to invest some of her money for long-term growth so she could build wealth over time and achieve financial security.

Kelly was motivated to get started on achieving her goals, but wasn’t quite sure how to go about it. Her financial advisor provided her with a plan of action that included creating a budget, setting up an emergency fund, paying down debt, and investing for long-term growth. She was given detailed instructions on how to go about each task, along with tips and advice on managing her finances so she could reach her goals as quickly as possible.

Working with a Financial Advisor

With the help of her financial advisor, Kelly created a budget that allowed her to live within her means while still putting aside money for her goals. She set up an emergency fund and started paying down her debt with the extra money she had left over after allocating funds for other expenses and goals. Finally, she began investing for long-term growth by investing in mutual funds and stocks that would help her build wealth over time.

By following the guidance of her financial advisor and sticking to her plan, Kelly was able to achieve all of her financial goals within two years. She was now able to sleep easier at night, knowing that she was financially secure and had achieved the goals she had set out for herself.

Kelly’s story is an inspiring example of how anyone can achieve their financial goals with the right guidance and dedication to their plan. By taking the time to create a budget, save for emergencies, pay down debt, and invest for long-term growth, anyone can become financially secure and reach their financial dreams!

What are 7 Top Personal Finance Management Skills You Should Master?

Budgeting

Budgeting is the heart of financial planning. Through masteting personal budget skill, an individual able to control income and expenses. Budgeting gives sufficient control over inflow and outflow of money.

There are several advantages of having budgeting knowledge. Budgeting helps to get a perfect clutch on income against expenses, able to identify and control unnecessary spending, proper allocation of money for rotating expenses, allocating money to control debts, well idea about current savings and improvements etc. All over the above, financial life become more structured and controlled.

Debt Management

Debt Management is not a profession. It is an art. Debt management is easy and difficult too depends on the debt management skills.

Acquiring knowledge on debt management gives control over debts. Plan and prioritize debts, prepare elimination plans, proper allocation of money for each debt considering priority, total control over the money allocated to pay-off debts, monitor status and debt free later.

Personal Financial’s Budget Planning

Planning and execution of budget for life, controlling and managing debts, taking necessary steps to get protected from consequences happening to self and family members, identifying all available possibilities to save money, able to face emergencies boldly, secure future of self, family and children by saving and investing.

What is an Example of Personal Financial Statement Template?

Assets 
Cash (in the bank, CDs, money market accounts)$__________
Checking$__________
Savings$__________
Securities (mutual funds, college savings, etc.)$__________
Accounts/Notes Receivable$__________
Real Estate (resale value of your home)$__________
Household Goods$__________
Vehicles (resale value)$__________
Cash Value Life Insurance$__________
401(k) Plan$__________
Individual Retirement Accounts$__________
Other Assets$__________
TOTAL ASSETS$__________
  
Liabilities 
Notes Payable$__________
Accounts/Bills Due$__________
Credit Cards Payable$__________
Vehicle Loans$__________
Unpaid Taxes$__________
Real Estate Mortgages Payable (remaining balance)$__________
Land Contracts Payable$__________
Life Insurance Loans$__________
Student Loans$__________
Other Liabilities$__________
TOTAL LIABILITIES$__________
NET WORTH$__________
TOTAL LIABILITIES AND NET WORTH$__________
(Assets always equal Total Liabilities and Net Worth)

Get Financial Statement and Budgeting Template from Canva

You can get several examples of financial statements and budgeting templates here:

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Money Saving

Knowledge on managing your money through saving have multiple advantages. Money saving needs to be practiced with daily activities!

Will be able to differentiate ‘needs’ and ‘wants’ to spend money wisely. Become structured on spending, identify loopholes causing unnecessary money loss, increase monthly savings through controlling spending, increase utilization power of items to its maximum, become knowledgeable on the required areas to save money from renting labors. More over that, can mentor kids, family members and others by sharing money saving tips and ideas.

Insurance

Through acquiring necessary skills on insurance, an individual get knowledge on protecting self and family from every possible financial issues.

With insurance knowledge, once can easily assess and define required protection including financial future, control over medical expenses, protect assets from various crisis etc. All over the above, can live peacefully.

Investing

Acquiring knowledge on investing have huge advantages to the financial life. It is not only a must have skill, but a necessity to plan the future successfully. Thus, investing activities known as the heart of actions to achieve future financial goals.

Through having excellent investing skills, a person can assess and understand risk taking capacity, set investing goals, identify right instruments to create investment portfolio, understand the advantages and disadvantages of various investing instruments, having better idea on risks and returns of each investment products, add right mix of investment products to create portfolio for each goal, identify the best product and time to invest, monitor and balance portfolio based on age and risks etc.

Child Investing

Whether it is higher education, marriage or any, to secure the future of kids, parents should have required skills on investing for the future of their children.

Through having this skill, parents can identify the future financial needs of their kids and plan accordingly. Able to build structured saving and investing habits, analyze and identify best product bundles to create portfolio, monitor, balance and confirm the investments meet the goals etc.

What are 11 Habits and Lifestyle to Support Your Personal Finance Management and Budget Optimization Success?

Negotiation

Negotiation is a key skill to master to get the best deal when buying or selling something, or even getting the best salary and benefits when accepting a job offer. Most people do not like to negotiate. It is easiest to pay the asking price, or accept the amount offered from a buyer or employer. But if you become skilled at negotiation, you can end up with lots more dollars in your pocket instead of in the other guy’s pocket!

Needs or Wants?

Do I need a new computer? My kids say that I do. I am using the same computer they used to play games on way back when George W. Bush was in office. I sometimes use my cellphone to look things up while my computer slowly loads a webpage. But I don’t need new computer. I can still get everything done with my old computer, including paying bills, updating my budget spreadsheet, and even writing books and articles for extra income.

Separating needs from wants is a key personal finance skill. There is almost no limit to bigger, better, and newer stuff that you could decide to buy. The best way to make spending decisions is to become disciplined at distinguishing needs from wants.

I like to think about the consequences of not buying something as a tool to distinguish needs from wants. For example, if I don’t buy the new shoes I am considering, will I not be able to go to work? Will I miss events for my kids because I don’t have any shoes that are acceptable to wear? Will I not be able to exercise safely? At some point new shoes can become a need, but if your old shoes are still doing everything you need your shoes to do, then new shoes are a want.

Pay All Debts

You should deal with the most important debts first – these are called ‘priority debts’.

Priority debts mean you could lose your home, have your energy supply cut off, lose essential goods or go to prison if you don’t pay. They include things like:

  • rent and mortgage
  • gas and electricity
  • council tax
  • court fines

If you’re struggling to pay debts like credit cards, store cards or payday loans you can ask to make lower monthly repayments. Paying less than it says you have to in your contract might make it harder for you to get credit in the future.

Continuous Investment

People who are financially successful do more than reduce spending and save money. They take the next step and invest money that they free up through smart spending decisions.

This investment mentality is what allows the small amount of money you avoid spending to grow into real wealth that can change your lifestyle and allow you the freedom to pursue your interests. Regular saving over time adds up — even with small investment amounts.

Bargain Hunting

Frugal people are known for having good bargain hunting skills. Making a purchase is a challenge to find the way to spend the least amount of money to get what is needed. Bargain hunting usually involves using coupons and shopping around to find the best price.

Sometimes buying a used item rather than a new item is the best bargain — you can save 50% or more buying used instead of new. Items such as tools or vehicles that are useful for years make good used purchases, but technology products often become obsolete so fast that buying new can be the best deal.

Reuse and Cross Utilization

There is an old saying “Waste not, want not” that summarizes the personal finance skill of reuse well. If you don’t waste anything, you will have plenty and not want for anything. I recently got into a conversation with my father about the oldest clothing item that we are still wearing. I mentioned that I still wear a lot of my 20-year-old clothes I got back in college. My father mentioned that he was currently wearing a shirt that is nearly 40 years old!

There is a situation when a thing can be utilized for other than its function. For instance, you can use a flat television not only for watching TV programs, but as a second monitor for your laptop or PC!

Food Preparation

It is amazing how much restaurant food, fast food, and prepared food items from the grocery store people are buying these days. It does take some planning and work to prepare your own food at home, but you can save a ton of money and eat healthier, too.

Do It Yourself (DIY)

It seems like everyone that comes to my house to do something charges about $60 to $100 per hour. I try to minimize paying people to come over and try to take care of maintenance and repairs myself instead to save money. I learned to do basic plumbing repairs and installation, including sweating copper pipes with a torch. I can do basic electrical wiring and repairs. Some people in my neighborhood have landscaping companies take care of mowing and weed control, but not me. The more things you can do for yourself, the more money you can save.

Develop skills to do work for yourself instead of paying others to do it for you. You’ll save money and get a great feeling of satisfaction when you can do the work yourself.

Saying “No”

Saying “no” is often the key to saving time and a smart way to managing your money. Would you like to subscribe to a magazine you don’t want in order to help your neighbor’s kid meet a fundraising goal? How about “no.” Would you like to volunteer to drive 20 miles each way to participate in a committee meeting on your day off? Again, “no” works well here. There are times when you might want to contribute your time and money to a worthy cause, but there are many times you feel pressured into taking on something you don’t really want to do.

Learning to say “no” and not feel bad about it can save you a lot of time, money, and aggravation.

Efficiency

Efficiency is the skill of doing as much as possible with the least amount of resources. Efficiency can mean making a single trip to do all of your shopping instead of taking multiple trips. Efficiency can mean driving a smaller vehicle that costs less and uses less fuel every day.

Often, efficiency keeps paying back over time. For example, the efficient choice to live in a smaller house results in a lower mortgage payment and lower utility bills year after year.

Energy savings is another example of efficiency in action. I spent a few hours and a few dollars to upgrade most of my light bulbs to LED. Due to this efficiency, I save money every month since lighting my house now costs almost nothing. You can manage your money by several smart saving techniques you can afford, as well.

Another form of efficiency is simply having less stuff. Do you really need eight different kinds of cleaning products under your kitchen sink? Having less stuff not only costs less, but less stuff takes less space as well. With fewer things around, it is easier to keep things organized and find what you need.

Contentment (Be Grateful)

I am sure that you can live with less, but can you be happy with less?

Contentment is living with a positive attitude and being satisfied for all of the things you have instead of wishing that you had blingy stuff. I drive an 11-year-old car that runs well. It even has leather seats and all wheel drive. What more do I need?

People might not get a sense of status from the vehicle I drive, but I am clearly beyond worrying about that. Part of being content with what you have is to stop caring about what other people think. People who know me respect my work and my accomplishments, and I am not really concerned about what strangers think about my car.

Contentment means setting your own standard for happiness. This can be difficult to achieve as you look at the photos of expensive vacations, recreational vehicles, and new cars that your friends post on Facebook. It is hard not to want expensive stuff when it seems like everyone else is buying it.

But the problem with pursuing happiness by buying expensive stuff is that there is always something else you’ll need to buy in order to be happy. As soon as you get back from vacation, it is time to start thinking about where to go for the next one. After your new car isn’t the newest on the block anymore, the excitement is gone. Buying happiness is like chasing a mirage. You can’t really reach happiness through buying things, but you can spend a lot of money trying!

Contentment is about finding happiness in the life you have right now, not the life you could have if only you had more money.

Anyway, less is more!

BONUS: PAY YOURSELF FIRST!

Profit First System: Personal Finance Management and Budget Optimization to Manage Your Money within Your Business

Pay Your Self First: The Richest Man in Babylonia

Important Basics and Concept of Personal Finance

Actionable Technique and Implementation of Personal Finance

More Important Mindset, Insights, and Ideas about Money and Wealth

Make It Happens: Where Will You Investing Your Money?

Other Books on Personal Finance (Custom Collection)

Other collection of 10 of the personal finance management and budget optimization books available today:

  1. “Your Money or Your Life” by Vicki Robin and Joe Dominguez.
  2. “Get Good with Money: Ten Simple Steps to Becoming Financially Whole” by Tiffany Aliche.
  3. “The Bogleheads’ Guide to Investing” by Taylor Larimore, Mel Lindauer and Michael LeBoeuf.
  4. “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko.
  5. “Financial Freedom” by Grant Sabatier.
  6. “The Total Money Makeover” by Dave Ramsey.
  7. “The Psychology of Money” by Morgan Housel.
  8. “Raising Financially Fit Kids” by Joline Godfrey.
  9. “The Intelligent Investor” by Benjamin Graham and Jason Zweig.
  10. “Smart Women Love Money” by Alice Finn.

Conclusion

To achieve financial goals it is crucial that you adequately plan your life such as how, when and on what to spend your money because this discipline will enable you to stick to your goals. Therefore, you have to have a budgeted life.

Personal finance defines all financial decisions and activities of an individual or household, including budgeting, insurance, mortgage planning, savings and retirement planning. Understanding these terms can help you better control your funds and prepare for future financial success.

Time to Put Your Personal Finance Management and Budget Optimization on A “Managing Your Money” Game!

Register for free online Rich Dad Poor Dad‘s The Cashflow Game by Robert Kiyosaki: https://www.richdad.com/promotions/cashflow-classic-evergreen

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