Personal finance. Those words might mean a lot to you. They might mean relatively little. Depending on your lifestyle and situation personal finance might be something that’s always on your mind, or hardly ever.
What is it?
Just to clarify, personal finance refers to any and all financial decisions made by the individual or family. This encompasses budgeting, saving and expenditures.
However, the Financial Planning Standards Board identify 6 key points that the term ‘personal finance’ umbrella, along with 5 steps.
Assessment – The act of compiling all the pertinent information regarding current, past and future finance situations. This includes collating data such as:
- Bank statements
- Loan agreements
- Income statements
- Personal assets (car, home, stocks/shares)
Setting Goals – The act of setting financial targets to adhere to. This encompasses both short term and overall long term goals. If you were to look at a short term goal, you might consider this to be “I will save up for three months to purchase new car insurance.” Long term would be “I will save up £50,000 before I retire.”
Planning – The actual ins and outs of how you are going to achieve those goals. This might include investments, saving money or increasing your income.
Actioning – Pretty much doing what it says on the tip. This is the actual work that you do to achieve your goals.
Preparation
Without this, you’re going to fail before you’ve even begun. A solid, well researched plan means the difference.
Remember to talk these into account when planning your personal finances:
- Financial position: What it is now. What is was. What you want it to be.
- Protection: Shielding yourself from unseen risks.
- Taxes: The only absolutes in life are death and taxes. Ensure you are aware of the legal stuff when it comes to paying.
- Investments: Recognizing when a goal is long term, and as such, planning for it.
- Retirement: Ensuring you know the small print when it comes to retirement finances. How much you get, how much you will have to pay, and how to cover any shortfall that may occur.
- Estate: Plans for what will happen to your finances and assets after you have passed on. Who get what? What goes where?
By thinking about all these aspects, you can create a viable personal finance plan which should ensure you get the best from your life (and your money).
Bio: Written by Halit Bozdogan on behalf of Nixon Williams.
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