Personal finance management includes all the financial decisions of a household or an individual that assist in better management of funds, preparing them for future financial success. It encompasses the following key components:
*Financial Planning:
Financial planning involves five steps, including:
Assessment of a financial situation
Goal setting
Creation of the financial plan
Execution of the financial plan
Monitoring of the financial plan for reassessments.
* Budgeting One can make smarter choices with the money by developing a comprehensively written budget. A budget assists in keeping a count of expenditure patterns and organizing monthly expenses.
* Savings
Savings management is a critical part of personal finance. One may choose to deposit a portion of the income frequently as it protects the funds and provides an added benefit of gaining interest. The money set aside can also be used to meet unforeseen expenses.
* Tax Planning
Individuals should map tax planning to their overall financial objectives and goals. Also, they should seek ways of saving taxes via tax reduction programs.
* Insurance
Insurance protects an individual from risks emerging from unforeseen and adverse events. If individuals are not adequately insured, disasters and accidents can leave them in financial ruin.
Investing
Investing is about buying assets that carry a rate of return in an expectation of receiving more money over time than originally invested. People can look at different investment options across varied asset classes as per their return expectations and risk profile.
