Personal finances are the planning that a person or a family does to budget, plan, and save money, taking all possible financial risks into account as well as future financial opportunities and possibilities. It is also about controlling expenses through savings and investments and also avoiding debts. Some examples of the activities that personal finances comprise include:
Budgeting is the process of identifying a monthly income and expense and comparing these to the available income sources to determine how much money is needed for a particular purpose. This helps the person to know what is going out and what is coming in. Budgeting involves the process of setting aside a small amount of money in order to cover unexpected expenses. The purpose of this type of budget is to keep track of the different expenditures that will be incurred in the future.
Financial planning is a way of setting the course and the strategy of an individual’s spending. This involves evaluating the present financial position of the individual and assessing the expected future situation, as well as the means by which the future situation can be achieved. The main objectives of financial planning are to avoid risks in the future, reduce expenses, increase savings, and reduce debt. Financial planning can be done in several ways, including planning a retirement, planning for college education, purchasing a home, paying for medical expenses and for other basic necessities.
Financial management is a very important aspect of the management of a household’s finances and a major part of a household budget. Financial management consists of identifying and managing individual expenses and making savings and investments in order to reduce financial risk.
Savings refers to money saved from one source so that it may be invested or used in a different manner. Savings are made by individuals on an annual basis as part of their personal budgets. Savings also provide an avenue for saving for future purposes, such as for retirement. Personal finance management, in contrast, refers to managing a household’s finances for the purpose of meeting one’s future needs.
In a household budget, financial assets and liabilities are separated and accounted for. Financial assets are those things that have an economic value and are useful for current or future economic requirements. Examples of these include financial securities, accounts receivable, accounts payable, personal property, consumer durables, and personal funds, all of which are classified under “finance”. A household’s liabilities are those things that create liability for other parties. Examples of these include debts, loans, credit card balances, mortgages, consumer debt, unsecured loans, etc.
One way of reducing the impact of financial transactions is through budgeting. Budgeting helps to determine the total cost of various types of expenses. It also determines the extent of expenditure and its impact on the household’s resources and finances. Budgeting is used to determine whether a household has sufficient or insufficient finances for meeting future financial needs.
Budgeting can be done by an individual, a household, or a government agency. A household budget may be drawn up using household budget software, a financial planner, or an accountant. A household budget may also be done by using a spreadsheet program, a spreadsheet designator, a computer based budget template, or a manual or automated spreadsheet.
The financial advisor, who is an experienced professional, can assist an individual, a family, or a government agency in developing a household budget. He or she will advise the client concerning how to set up a household budget to suit his or her particular needs and goals, as well as how to implement it to achieve those objectives.
The role of a financial planner is to prepare and help a person or a household develop an individual and household budget. Financial planners can be hired or employed, but both can provide similar services. They work with households to help them organize their personal finances into a plan that allows all funds to be available for use as they are needed, instead of being dispersed into many different areas. They will prepare the financial statements that detail the income and expenditures of the household and their family.
A financial planner can also help a person and his or her family to develop an individual and household budget by providing assistance in the identification of areas that need improvement in order to improve or achieve a household’s financial future. A financial planner can also help to formulate a budget that includes savings and investment plans and strategies to achieve a household’s goals.