The Importance of Personal Finance PDF Print E-mail
Written by Chris Blanchet   
Saturday, 06 June 2009 14:07
Understanding the importance of personal finance is very crucial for everyone, but normally does not become much of a priority until people experience financial hardships. In the following paragraphs you can learn more about what personal finance is and how one can effectively learn to manage personal funds.
by ChrisBlanchet


Understanding the importance of personal finance is very crucial for everyone, but normally does not become much of a priority until people experience financial hardships. In the following paragraphs you can learn more about what personal finance is and how one can effectively learn to manage personal funds.

As far as understanding the importance of personal finance, many people ignore just how crucial the subject is until they experience a devastating financial hardship. Of course, by now it is often too late. The upcoming paragraphs discuss the basics of personal finance and how people can properly manage their personal funds.

Day-to-day bank accounts (checking and savings) Credit and Borrowing products (credit cards, loans, lines of credit) Property and equity investments Retirement savings Insurance coverage Government-funded benefits (social security) Taxation

When considering the topic of personal finance, all of the above areas need to be scrutinized and involved in any type of plan. From drafting a budget, putting a long-term savings plan together, or calculating a debt repayment schedule, all of these areas of personal finance need to be taken into account.

The importance of personal finance lies in effective planning. Personal financial planning is a dynamic process that can be divided into five steps:

Assessment: Here, the financial status is captured by outlining one's net worth and creating a budget. The net worth statement will list all assets and debt. By subtracting the debt from the assets, one captures his or her net worth (it may even be negative in some cases). The budget lists all income and subtracts all expenses, hopefully allow for a positive cash flow.

Set Goals: After completing the Assessment stage, it is time to establish financial goals for the short term and long term. For most, short-term goals involve debt repayment and long-term goals focus on savings.

Establish a plan: The individual would require making a financial plan. The plan must be developed in a manner that would help to accomplish goals. Some inclusions in the plan could be ways to reduce unnecessary expenditure, increase disposable income and invest in the right places.

Implementing the plan: This part of personal finance involves taking action. For many, this is the most difficult part as it requires discipline and determination. Often, experts are needed (such as a lawyer to prepare a will, an accountant to legitimately reduce taxes, etc.) at different stages of the plan. This is also where the importance of personal finance is best witnessed.

Monitoring and reassessment: All the above should be regularly monitored and reassessed for possible adjustments.

If managing debt is something of a struggle, the importance of personal finance is probably a lot more prevalent now than ever before. Since debts seem to accumulate and spiral out of control rather quickly, focusing on personal finance can certainly help change the course of one's finances.

Given the heightened importance of personal finance in our current economic climate, focusing on debt repayment should take priority. This not only allows individuals to improve their cash dilution rate, but frees up cash for longer-term financial goals.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

With more than 15 years invested in the financial services industry, Chris Blanchet has helped thousands of clients conquer debt and achieve their financial goals. His latest Personal Finance e-book documents his experience in the field and also provided the foundation for the Members Only website of the same name. Be sure to visit his debt-free blog for more free tips and advice.