Share this article What is Personal Finance?Personal finance is the financial management of an individual or family’s resources, including budgeting, saving and investing, insurance, retirement planning, and tax management.It is the process of planning and managing your money to achieve personal financial goals. This includes budgeting, investing, saving, insurance, and making financial decisions. What is the 50-30-20 rule of Personal Finance?The 50-30-20 rule of personal finance is a guideline to help people manage their money. In this rule the divide your income into three different categories. First Spending 50% on your personal needs second 30% should spend on your future wants and third 20% of your income in savings. PERSONAL FINANCE FOR INDIVIDUAL Why Personal Finance is Important in Life?In your life the Personal finance is a very important part of not only managing your day-to-day financial needs but also planning your financial future life. The sooner you get a grip on personal finance, the better your long-term financial aspects will be for things like investing or planning for retirement.By understanding the elements of personal finance, you can better understand the opportunities to improve your finances. This understanding can help you budget for current needs while planning for long-term financial goals. The 5 areas of Personal Finance are including income, spending, savings, investing, and protection.1. Income:- Income is the foundation of your finances and includes your cash flow-the money you take in from all sources. It includes salary, pension, social security, and income from rental property or investment.In general, Income means their total earnings in the form of wages and salaries, the return on their investments, pension distributions, and other receipts. For Business, income means the revenues from selling services, products, and any interest and dividends received concerning their cash accounts and reserves related to business. 2. Spending:-Spending includes the money which you expenses you have. Controlling the amount of money you spend can allow you to set aside money to grow your financial future.Financial goals are integral to making personal spending plan work. Financial goals, such as saving money for a vacation, or buying a new home, help individuals determine how much money should be diverted from living expenses into savings and investments.It is necessary to use a financial planner to make a spending plan. It can 0be as simple as using a shareable spreadsheet or online money tracker. Reporting all spending is necessary to keep an accurate and detailed account of each category of spending, like groceries, school-related fees or environment, foods, clothes, etc. Spending is the one of the important for personal finance 3. Savings:-Savings includes in your life the money from your income that you do not spend but set aside for better future Life . It is necessary to provide for potential expenses-planned or unplanned.Savings refers to the money that a person has left over after they subtract their consumer spending from their disposable income over a given period of the period. Saving, therefore, include represents a net surplus of funds for an individual or household after all expenses and obligations have been paid.The most five common types of savings tools are checking accounts, savings accounts, money market deposit accounts, certificate deposits, and savings bonds. It is important to determine which savings tools are appropriate to assist in the attainment of personal goals. Savings is the most important part of Personal Finance 4. Investing:-Investing is different from savings. While savings are what’s left over from your income, investments are purchases that allow you to earn future income or savings. Investments include , that your earn money investing in the purchases of mutual funds, stocks, bonds, or real estate that you expect to give you a good rate of return in your life. Investing means putting your money or other resources towards something you expect to earn income, turn a profit or create some other positive benefits. When you invest, you buy assets that you expect to increase in value over time, which can grow your amount of money.The top common type of Investments are stocks, Bonds, Mutual funds, Exchange Traded Funds, Certificates of Deposits, Retirement Plans, Annuities, etc. 5. Protection:-Protection from financial risks can be handled through a variety of financial products including annuities, property/casualty insurance, life insurance, and health insurance. These services or products can provide your life financial security or protection from unexpected financial costs in your life.To protect the assets in your estate and ensure that your wishes are followed. When you will die, be sure you make a will depending on your needs. You will also look into insurance and find ways to reduce the premium, if possible auto, home, life, disability, and long-term care(LTC). It periodically reviews your policies to ensure they meet your family’s needs through life’s major milestones.Retirement may seem like a lifetime away. It arrives much sooner than expected. Most people will need about 80% of their current salary in retirement. The younger you start the more you benefit from what advisors call the magic of compounding interest-how the small amount grows over time. PERSONAL FINANCE IN EVERY INDIVIDUAL LIFE IS IMPORTANT What are the fundamental Principles of Personal Finance?There are 12 basic principles of successful personal finance which is financial literacy education in U.S Public schools.1. Know your take-home pay:- Be aware of your income before you commit to any significant spending such as credit card debt, car loans, or any mortgageTake-home pay is the amount , which you received after spending tax, insurance, and other deductions have been removed from an employee’s gross monthly salary. It is also known as net payment or net salary of the individual .2. Pay yourself first:-Set aside money from each paycheck for unexpected emergencies and long-term goals before paying your bills.When you pay yourself first, you pay yourself ( usually via automatic savings) before you do another spending. Pay Yourself (PFY) means to redirect a portion of the income you receive to retirement, savings, emergency savings, or some other type of savings as soon as you receive it, and before you pay any other bills.3. Start Savings now:-You should start saving for your future while you are still young. The longer you save the more interest your savings will earn. Savings is the portion of income not spent on current expenditure. In other words, it is the money you set aside for future use and not spent immediately..personal savings contribute to investment all else equal a higher savings rate will result in a higher level of physical capital over time, al…lowing the economy to produce more goods and services.4. Remember Rule 72:-To figure out how many years it will take your savings to double, divide 72 by the interest rate of your savings. Hence if the rate of interest rate is 8%, the number of years it takes to double your money is 72/8=9 years.The rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return.5. Never borrow from others which you cannot repay:-Make sure that, you can pay off what you owe others. This will improve your credit overall and keep your debt manageable.A default occurs when you a borrower stops making the required payments on a debt. Defaults can occur in debt, such as a mortgage loan secured by a house, or unsecured debt, such as credit cards or a student loan. Defaults expose borrowers to legal claims and may limit their future access to credit.6. Create a Budget:-Set up an annual budget of income and known expenses. Use this as a roadmap to build your savings while living within your income.Budgeting is the very important process of creating a plan to spend your money in better way. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you have enough money to do the things you need to do or would like to do. Budgeting is simply balancing your expenses with your income in future.7.Remember that High return means high risks:-A high return on investment typically means you are going to have to take higher risks. Diversifying your investment can spread that risk around, protecting your investments.High-risk investments in your life may offer the chance of higher returns in life. Other than the investments might produce, but they put your money at higher risk. This means that if things will go well, high-risk investments can produce high returns. 8. Plan your financial future:-Take time to write down your financial goals-both short-term and long-term. Then work out a realistic roadmap to get you to those goals.A financial plan paints a comprehensive picture of your current finances, your financial goals, and any strategies you have set to achieve those goals. Good financial planning in the life includes details about your cash flow, savings, debt, investments, insurance, and any other elements of your financial life.9.Your Credit past determine your credit future:-Your credit record or credit history is kept for years by credit bureaus. If you have trouble paying loans or credit card debt, that record will hurt your chances of getting credit in the future.Your credit score shows whether or not you have a history of financial stability responsible for credit management. The score can range from 300 to 850. Based on the information in your credit file, major credit agencies compile this score also known as FICO Score.10. Buy Personal Insurance:-All insurance like Health insurance, automobile insurance, home insurance, and life insurance can protect you and your loved ones from financial hardship in the event of accidents or illness.Insurance planning provides financial protection by compensating for the losses you face to covered emergencies. You will get to save Income tax by purchasing certain insurance plans. For instance, the premium paid for a health insurance policy qualifies for tax deductions under the Income Tax Act.Conclusion:-The Personal finance in the every individual life is about managing your money to meet your personal financial goals. Usually, over a long period –your whole life Managing your money is necessary for living self-determined and secure life, whether you are planning for a retirement fund or saving up for a car.Good Personal finance fosters growth, promotes, entrepreneurship favors education, alleviates poverty, and reduces inequality in society You May Like my More Articles:-1.https://odiyadigitalworld.com/why-systematic-investment-plan-is-the-best-for-investment-in-india/2.https://odiyadigitalworld.com/how-do-internet-banking-services-affect-the-banking-industry/3.https://odiyadigitalworld.com/what-are-the-different-savings-schemes-at-the-post-office-in-india/(opens in a new tab)(opens in a new tab)(opens in a new tab) Share this article Post navigation Why Systematic Investment plan is the best way to Investment in India? How Option trading is different from the Stock trading?
