Personal Finance

Personal finance involves the ways in which an individual or a family earn, budget, save, and spend monetary assets over time, considering several financial risks and future events. Personal financing comprises elements such as checking and savings accounts, credit cards and consumer loans, stock market investments, retirement plans, social security benefits, insurance policies, and income tax management. Planning is the cornerstone of personal finance, and it can be broken down into five stages, assessment, setting goals, creating a plan, execution, and monitoring and reassessment. On the whole, personal financing covers six different areas: financial position, adequate protection, tax planning, investment and accumulation goals, retirement planning and estate planning.

Going back to the five steps of personal finance planning, assessment can be done by compiling financial balance sheets and income statements listing the values of personal assets, along with personal liabilities, as well as personal income and expenses. Step two is setting goals, for instance, retiring at a certain age with a certain personal net worth, or buying a house in x amount of years while paying a monthly mortgage servicing cost that is no more than y percentage of one's gross income. Then comes creating plan detailing how to accomplish the aforementioned goals, including measures such as cutting down unnecessary expenses or investing in the stock market. Executing a particular personal financial plan takes discipline and perseverance, but it can be achieved with help from professionals like accountants, financial planners, investment advisers, and lawyers.

As for the six areas of personal finance, financial position has to do with understanding the personal resources available by assessing net worth and household cash flow; adequate protection analyzes how to protect a household from unforeseen events; tax planning deals with when and how much taxes to pay; investment and accumulation goals refers to how to amass enough money to purchase a house, a car, start a business, pay for education expenses and retirement, among other goals; retirement planning is the process of understanding how much it will cost to live at retirement; and estate planning entails planning for the disposition of asset after one's passing.