importance of personal finance essay

importance of personal finance essay

The Importance of Personal Finance

1. Introduction

Personal finance entails all decisions and activities affecting the general or typical person in the field of finance and allowing financial professionals to offer financial services to others, while also benefiting from the services. This requirement covers the complete business of the financial services industry and needs and the fundamentals of the company. Personal finances are broadly defined: incomes, spending and savings objectives, etc. are associated with these. Financial planning has been part of the commitment for personal well-being. While the broad principles of financial management remain the same, the advice needed can certainly differ. For instance, someone in their 20s could be concerned with the costs of student loans and the best time to start contributing money online, while someone in their 50s could be worried about triggering college expenses and growing wealth or decisions about long-term care.

Personal financial literacy has been in the forefront since the recent housing market collapses and subsequent economic collapse. Unfortunately, the lack of financial literacy can lead to long-term financial holdbacks and can be exacerbated by the lack of financial understanding. The purpose of the study is to be a global touchstone and compare the levels of financial literacy programs which are finally correlated with personal finance behavior. What behaviors are needed as well as pedagogy worldwide are proposed. The paper concludes that financial literacy plays a significant part. Government, universities, and organizations would work on personal finance, financial education, financial institution, and financial literacy. Given the overall understanding of the huge distance; more to learn about how individuals need to acquire an understanding of each.

2. Understanding Personal Finance

Wherever you are in your life, there are always going to be some financial goals that you need to consider. Understanding personal finance can help you clarify your financial objectives and can guide you as you work towards achieving them. With this understanding and the support of your trusted financial professional, you can continue working towards your goals through smart personal financial planning, that includes adjustments as your personal financial situation evolves. A major step to understanding personal finance is to be able to take charge of your personal financial situation. To do this, you need to know how to take good care of your money. Taking good care of your money will help you achieve your personal financial goals. Additionally, when you are able to successfully manage your money, you will be able to confidently create a financial plan in order to help you achieve your short and long-term financial goals.

Understanding personal finance can also help you understand how to best handle unexpected financial challenges. The right personal financial plan will allow and empower you to take care of your personal financial situation and will provide you with advice on navigating not-so-straightforward financial planning solutions. There are many areas of personal finance that may seem overwhelming. Understanding personal finance for beginners is especially important, as they are more likely to be young and inexperienced with money matters. In order to understand personal finance, you will need to comprehend some basic financial planning concepts. In this article, we will provide a guide to personal finance to help you understand how to create a personal financial plan that works for you and can help you succeed in your life.

3. Benefits of Managing Personal Finances

The results of the research showed that many young people are in financial illiteracy, as some of their answers indicated that they did not know terms and concepts used in personal financial management or had their own interpretations that showed a lack of knowledge in the subject. With regard to discipline, many adolescents indicated an interest in knowing personal financial concepts, associating them with the acquisition of assets (which is the “what” of personal financial management), but they do not understand how to acquire them. The objective of this research is to demonstrate, through academically valid perspectives, the importance and several financial benefits for students who, through education, can more confidently manage and make appropriate decisions for their personal finances, in addition to supporting them in making decisions about credits, investment, income taxes, and several other personal financial issues that affect their quality of life.

Personal finance is the financial management which an individual or a family unit performs to plan, save, and invest monetary resources over time, considering various uncertainties and risks. In this study, the authors demonstrated that adolescents do not know how to manage their personal finances and stressed the importance and benefits of good personal financial management, presenting a survey to support their claims. The objective of the authors was to present an exploratory study conducted at two private schools in Taubaté, where 214 middle-class teenagers were submitted to a survey to verify if they knew the financial terms used daily by their parents and acquaintances and to demonstrate that their parents and acquaintances did not know how to manage personal finances. This research suggests that a lack of knowledge in personal financial planning is associated with financial illiteracy. However, personal financial management and currency counter-effects have not been extensively studied with regard to the direction of this association. The study focuses on the domain of personal finance of the public.

4. Strategies for Effective Financial Planning

Establishing an emergency savings fund is also a common strategy for financial planning. This is a short-term tactic but is one frequently recommended to individuals because the possibility of a high-yield investment does not offset the need to have funds on hand to carry them through emergencies and unforeseen events. Individuals should keep between six and nine months of their living expenses in savings and use it only for true emergencies such as auto repair or medical expenses. Setting financial goals is frequently recommended by financial advisers as another strategy for financial well-being. A family’s collective mission is the source and found of their actions and it acts as a roadmap for financial activities. Individuals should not wait until they are advanced further into their future to set their financial goals, but should use established concrete and realistic criteria, and not set themselves up for failure by setting goals that are too lofty.

There are several strategies that individuals and families can put into action in order to effectively plan for their financial well-being in the future, one of which is to prepare and stick to a budget. This is a key feature of financial management in the here and now and is probably where we get the greatest help. Through the act of preparing a budget, individuals are made to face their financial reality. It is the best way individuals can tell whether their lifestyle is supported by their income. A budget should be based on the annual income and should mirror the demographic area in which they live, but should not exceed the income. Most individuals do not keep a careful record of what they spend. The budget provides them with their monthly and annual spending and therefore projects their money needs and without that knowledge, individuals cannot plan their income to meet their household’s expenses.

5. Conclusion

In a survey conducted in 2020, more than 1,000 parents were asked by reddot to find out how they manage their personal finance. Nearly 90% had at least one regret about how they had managed their personal finance. The following may be life consequences if your personal finance is in a mess: scarcity of resources, poor physical and mental health leading to a poor quality of life, the erosion of personal relationships, increased emotional stress (this usually leads to other issues such as smoking and alcoholism which in turn can lead to physical health problems and are contributors to poor health), filial responsibility and/or low standards of living in retirement. Both parents may lack the interest and understanding in wanting to build their personal finance early due to the lack of financial education, and current and adequate support program. The close relationship between good physical health and mental health, as well as financial demands, appears to be a robust finding. Several different factors within the process, structure, and input of financial facts can influence financial planning, leading to gene effects on several aspects of dysfunctional life outcomes including depression. Helper will be needed in many of the areas listed above if anyone falls under the above categories of dysfunctional life. Improve your financial well-being through stress-reducing initiatives with a proper personal finance management system. Make a commitment to the wealth program, financial plan, newsletters, access to the Foundation panel which offers a toll-free number and information that guides you through the range of organizations and services.

Several media sources are reporting that a government College of Financial Planning study estimates that over 60% of Americans lack proficiency when it comes to financial literacy. Such a statistic is frightening. The proper financial management and planning of money matters for every individual. Everybody needs to maintain their personal finance in the best way. To enable individuals and families to master their finances, there are many information and courses available. The contents of many of these are outlined on this website. As well as acquiring financial knowledge, building a proper financial plan to implement is equally important. Having a clear understanding of how to build a proper financial plan is a step towards financial security and independence.