Personal Finance: Principles of Finance of an Individual or Family
Personal Finance
Personal finance is the application of the principles of finance to the monetary decisions of an individual or family. It addresses the ways in which individuals or families obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events. It refers to the financial decisions which an individual or a family unit is required to make to obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.
The six key areas of personal financial planning, as suggested by the Financial Planning Standards Board, are:
1. Financial position: It is concerned with understanding the personal resources available by examining net worth and household cash flow. Household cash flow totals up all the expected sources of income within a year, minus all expected expenses within the same year. From this analysis, the financial planner can determine to what degree and in what time the personal goals can be accomplished.
2. Adequate protection: It is the analysis of how to protect a household from unforeseen risks. These risks can be divided into liability, property, death, disability, health and long term care. Some of these risks may be self-insurable, while most will require the purchase of an insurance contract. Determining how much insurance to get, at the most cost effective terms requires knowledge of the market for personal insurance.
3. Tax planning: Income tax is the single largest expense in a household. Government gives many incentives in the form of tax deductions and credits, which can be used to reduce the lifetime tax burden. Most modern governments use a progressive tax. Typically, as one 's income grows, a higher marginal rate of tax must be paid. Understanding how to take advantage of the myriad tax breaks when planning one 's personal finances can make a significant impact.
4. Investment and accumulation goals: Planning
Personal finance is the application of the principles of finance to the monetary decisions of an individual or family. It addresses the ways in which individuals or families obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events. It refers to the financial decisions which an individual or a family unit is required to make to obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.
The six key areas of personal financial planning, as suggested by the Financial Planning Standards Board, are:
1. Financial position: It is concerned with understanding the personal resources available by examining net worth and household cash flow. Household cash flow totals up all the expected sources of income within a year, minus all expected expenses within the same year. From this analysis, the financial planner can determine to what degree and in what time the personal goals can be accomplished.
2. Adequate protection: It is the analysis of how to protect a household from unforeseen risks. These risks can be divided into liability, property, death, disability, health and long term care. Some of these risks may be self-insurable, while most will require the purchase of an insurance contract. Determining how much insurance to get, at the most cost effective terms requires knowledge of the market for personal insurance.
3. Tax planning: Income tax is the single largest expense in a household. Government gives many incentives in the form of tax deductions and credits, which can be used to reduce the lifetime tax burden. Most modern governments use a progressive tax. Typically, as one 's income grows, a higher marginal rate of tax must be paid. Understanding how to take advantage of the myriad tax breaks when planning one 's personal finances can make a significant impact.
4. Investment and accumulation goals: Planning
References: • http://www.eurojournals.com/ejefas_16_09.pdf • http://www.captus.com/pfp/PFP-Research1.pdf • http://www.antiessays.com/free-essays/265753.html • Hwang, T. and Gao, S. (2003), “The determinants of the demand for life insurance in an emerging economy-The case of China”, Managerial Finance, Vol. 29 No. 5/6, pp. 82-96. • Lim, V.K.G. (2003), “An empirical study of older workers’ attitudes towards the retirement experience”, Employee Relation, Vol. 25 No. 4, pp. 330-346. • Gitman, L.J. and Joehnk, M.D. (2005), Personal financial planning, Thomson South-Western, New York, NY.