The True Importance of Personal Finance PDF Print E-mail
Written by Chris Blanchet   
Wednesday, 27 May 2009 12:49
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.

Personal finance is all about applying certain principles of economics to the monetary expenditures. It has several aspects like:

Bank accounts (checking and savings) Personal Credit (credit cards, loans, lines of credit) Investments in property, stocks, bonds Retirement planning Insurance policies Social Security benefits Taxation

When developing a financial plan, either individually or with the help of a planner, the items discussed above need to be addressed. Whether developing a complete budget, a long-term savings plan, or a debt-repayment schedule, these areas need to be taken into consideration.

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

Assessment: This involves collecting data and preparing a financial summary such as a net worth statement and budget. The budget includes income and expenses and what is left. The net worth statement subtracts all debt from assets (even if net worth is negative).

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: With the goals in mind, creating plan aims to transform the current situation into the situation outlined. This often includes cutting unnecessary expenses and/or increasing disposable income so that funds can be deployed in the right area (e.g. debt repayment or investment savings).

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.

Measure Progress and Adapt: No plan is ever complete after its first draft, and a financial plan is no exception. Here, the individual measures his or her progress and adapts to different circumstances.

For individuals struggling with debt management, the importance of personal finance cannot be clearer. Since debt has a way of metastasizing, making personal finance a priority will be instrumental in reducing or eliminating debt and focusing on building wealth.

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.
Last Updated on Saturday, 30 May 2009 14:42