From the time when civilization first began taking its introductory steps, the foremost thing which was considered essential for the survival of mankind was nothing but the natural resources existing all around. It was right after this event that a need to keep these resources intact took the shape of reality. Certain systems were arranged that maintained a balance of all these resources. From the barter system to the money mechanics, everything fell in the right order just to make sure that there was a balanced distribution of money.
However, one thing which the civilization has learned over all these years is to preserve money for catering to all the basic needs.
Significance of Money in the Global World
Today the shape of society has changed into a figure that is an embodiment of capitalism. It is the money that makes big decisions, turns the directions, judges the global circumstances, and decides the fate of all humanity. Today, the need for money is intensified because of the capitalist tradition. At the same time, there are new philosophies in economics and finance that ensure the availability of surplus capital. It must be remembered that an individual is an integral part of an organization. Hence whatever starts at an integral level turns out an absolute success at an organizational level.
What is Personal Finance on a Basic Level?
Personal finance can be assumed as the integral or individual level attempt to secure the money for the unfortunate period or commonly known as the “rainy days”. It is an effort from the individual part to secure money for times that are unpredictable and has various pathways of operation. If we stumble across one simple definition of it we will find that “Personal finance is an act of saving, investing or managing the utilization of money through various economical plans including investments, budget mechanics, and insurance and saving plans.”
Role of Personal Finance Units in Financial Management
With time, various organizations have taken root deep in the economical world just to make things for individuals or organizations so that everything manages quite easily and there is not a lot of mess to clean at the end. These financial services or businesses provide all the details by keeping a note about your financial condition and then advise or devise a plan for you accordingly. This enables you to easily analyze your financial situation as well as use it in the best capacity when the need of time speaks for it.
Why is Personal Finance Required?
In a period when the financial situations are abruptly changing and every other day something new pops out rather than indicating itself as a new tax or some unusual payment, it becomes very necessary to keep a close check on the financial situation. Income and expenditure are two main units of personal finance and it is necessary to keep a balance between both through various measures that can hold the financial skeleton right at its place. This is why you can rely upon the mechanics of personal finance which assure you that nothing unpredictable strikes at your door and affects you adversely.
As a part of personal finance, financial planning is equally necessary. It is because you find out how much is done and how much is still required from your side to manage the expenses following the expenditure. A sound financial plan is one where you can find the financial constraints lying as well as by the end you develop new ways of saving up money. Just like human growth, financial planning is an organic process and develops slowly at every phase.
Here are some of the phases listed below to make you aware of your very own direction in the financial race.
- Overview of your income and make a list of the total expenses
- Prepare a flexible budget in light of the income
- Always keep an “emergency fund” in your checklist
- Keep a close eye on the taxation process
- Refrain from being too extravagant
- Monitor the credit card score from time to time
- Save and invest in plans that seem feasible and workable in the long run
Income & Expense Overview
The deciding factor in personal finance is nothing except the money you earn. You have to be diligent enough to keep a record of your salary if you receive it on a daily/weekly/monthly basis. After making notes on the amount of money you earn, you can then correspond to the expenses altogether. In a familial system, an individual is not just responsible to manage his/her expenses but the family’s as well.
It should be kept in mind that whenever you are estimating the total expenses altogether, you categorize major and minor expenses as well. This categorization will, later on, assist you to formulate a specific budget meeting up the expenses. There is always a chance of accidental expenses, so whenever you are set to categorize all the expenses, always leave a section at the end for the times of tribulation. This makes you mentally prepared to manage an unexpected expenditure at the time when the need arises.
Preparation of a Flexible Budget
A monthly budget is very necessary and the most useful form of calculating your overall expense and the saved content. A budget includes set proportions of your income for the sake of meeting the necessary and routine needs. There are specific categories of the expense level in the budget where you mention the expenses according to the utilization.
A flexible budget helps you to manage every financial affair effectively. This is because you can devise strategies for spending wisely. There are ideas which help you to cut down the extra expenses by using the resources which are already in hand. Apart from this, you can set a goal every month provoking you to save a portion of your income despite meeting the urgent needs.
An emergency fund is the portion of your income or your overall earnings which you have saved for any inadvertent sort of scenario. It can be either some immediate health issue, a call upon the loan, an immediate submission for some fee, or on the maintenance of anything which needs immediate attention.
When you are already keeping a sum of specific money locked up in your closet, you are freeing yourself from adopting any painstaking effort of the future. Even if fortunately, this portion of the income remains unused you can save it up for future upheavals. It is better to add a minimum income to this fund so that it turns out a whole river when the need strikes badly.
An Eye on the Taxation Process
Taxes are a prime part of the capitalist environment. You cannot expect to go on running up your business or personal affairs without giving a sum of your money to the government. However, it is equally important that you keep a check on the type of taxes which you are liable to pay. This will help you cut down the extra resources making sure that you save a surplus amount for the tough time.
A wise individual is the one who has the silent checklist of all the taxes which are paid by him/her so that things eventually don’t go out of the way and he/she knows the power of control over the financial resources.
A Clear no to Extravagance
Whenever you are about to save money, spending it foolishly is a clear no. It is acceptable that several people today are shopaholics and love to spend money for the sake of changing their standards. However, the excess can turn lethal if you have no control over the unnecessary expenses. This will eat up all your savings like a parasite leaving you deprived and financially too weak to cater to the basic needs at a certain point in your life.
Monitoring the Credit Score
Credit cards have become the new normal. All of us are bound to pay through credit cards mostly. In this race, sometimes, we become too immersed that we even forget about taking a deeper look at the credit card score which should be around 690 to 800. This is a very important reminder for you all to check the associated score whenever the credit report comes so that you do not find it hard to pay for the expense on the behalf of all of your credit because this is going to leave you bankrupt or in the gravest of the situations, a defaulter.
Saving & Investment
The best way to manage income is to invest it in plans where it seems useful. There are various insurance policies, estate policies, saving plans, or retirement ventures offered by banks or various other financial organizations to help you in that. You can always rely upon them to save up for the future. As a part of the family, you always have to think one step ahead. This can make all your plans work out right when you decide to shape them.
There are also certain kinds of saving policies that help you establish your own business, once you bid farewell to your employment organization. These plans incorporate the use of your saved funds and present to you a business plan based on your financial chart. Even if you are liable to pay off some loans, leases, or mortgages, specific saving plans can rescue you alongside providing timely reminders.
Personal Finance is Personal Independence
This statement stands true to its nature because once you are immersed in managing your financial affairs, you are all set to become tension-free in this aspect at least. You have an idea about your expenditures and you divert your income towards the advantageous direction where you do not just use the income but rather save it up which keeps you from falling into traps of financial dependence at alternative places invoking financial independence.