what is personal finance essay

what is personal finance essay

The Importance of Personal Finance Management

1. Introduction

From the other side of the spectrum, much can be learned by those who manage to excel at it. For instance, the association between personal finance management and decision making at the level of national and organizational concerns; or, decision making as it affects other areas of expertise, such as accounting, marketing, regulation and legal, and organization theory. With today’s liberalization of the world of information, the subject could and should be advanced, to unleash its full potential for individual growth, and while advocating for the overall advantage of society at large.

While it is true that many of us are focusing on other areas of expertise due to heavy demands of modern society, mastering personal finance is a key part to running a successful business (and home!). Entrepreneurs, considered some of the most resourceful citizens for their inclination to take risks and step out of their comfort zones, may be avoiding personal finance management because they believe it can lead to controversy – being forced to slash company operating costs, and laying off staff; or financial ruin, when their companies close down.

For many people, the term personal finance is an enigmatic umbrella which encompasses a number of financial areas, including budgeting, investing, saving, setting financial goals, and using credit responsibly, among many others. Worse, pejorative baggage is swiftly associated with these components: lack of disinterest in budgeting; poor/mis/unclear financial goals; being unfamiliar with the stock market; the belief that managing finances takes too long; and that using credit unwisely seems fashionable. Financial planners often find the task extra daunting.

2. Understanding Personal Finance

Because of the importance of understanding personal finance, I still firmly advocate for its inclusion in the everyday elementary and high school curriculum. If people are not educated properly in finance, the consequences are that they will not understand the importance of saving and investing for long-term and short-term goals – both long and short term. Discussions with elementary and high school colleagues indicate that personal money management and investing, which are covered in senior high school finance classes, lack the degree of importance needed and the degrees of understanding provided. To fulfill individuals’ financial needs from the earlier stages of their lives, it is important that they understand personal finance basics.

In my years of teaching financial management to employees, one of the most important things that I emphasized was that to become financially successful or achieve financial independence, the first thing we had to understand was personal finance management. Personal finance management or financial planning can be defined as a process of developing, monitoring, and adjusting a well-constituted financial plan. Planning your finances can provide you the freedom to undertake activities that are important to you, such as spending quality time with your family, taking a well-deserved vacation, or engaging in a hobby that can help relieve stress. Quite simply, financial planning can provide you comfort and provide you with the flexibility to pursue those activities that are important to you, those that can make your life meaningful.

3. Key Principles of Personal Finance

When it comes to dealing with your personal finance management objectives, you need to have a means of tracking and assessing them. This will allow you to see the progress of your financial goals by evaluating the reports periodically. In the early stages of using a cash budget or other financial planning methods, prepare an annual cash budget identifying your future planning with your net present value. Before creating personal finance planning and this budget, homeowners have to remember and prepare the finance plan and cash flows for future years. The financial plan can be created not only for those owners who have existing debt but also for owners who do not have existing debt. So before creating private finance planning, homeowners have to prepare the cash flows and together with its budget and finance plan for future years.

Personal finance goals must be specific, such as setting a goal of earning $100 each month. Alternatively, you might want to be proactive with your personal finances by having larger balances within the bank. You can even set the goal of having a special checking account that is separate from your other savings accounts. Make it specific, achievable, and relevant to your other financial objectives.

Personal finance is all about financial management with a focus on the medium and long term of a person. Setting financial goals is often a part of the talk when it comes to money. Here are a couple of issues to contemplate when setting your personal finance goals.

4. Strategies for Effective Personal Finance Management

There are two ways of increasing one’s savings. It could be through an increase in income or reduced consumption per time. The former seems mostly tied to one’s educational achievement, i.e. the higher the educational qualification, the greater one’s income. Quite often and in order to be competitive, people often go back to school to seek that educational qualification or go through necessary certification and then return to the workforce to find out that theirs is not what it used to be. For the most part, they get stuck in the unemployment market forever and are unable to work today to spend on education. The end product is reduced consumption of energy and in some cases even health concerns. On the other hand, a reduction in current energy utilization would increase savings for future use in energy efficiency improvements. The majority of the analytical tools required for energy investments and energy efficiency are the same tools used to solve nearly all financial planning issues; hence, we could be bringing the energy efficiency topic to their doorsteps. Creating the necessary financial safety nets prior to investments somehow develops the acumen required in overcoming the principle of project financing problems, as described in the energy efficiency literature.

Spending less than one earns is the watchword for generating savings and thus, the ability to fund energy investments. “Pay yourself first”, a philosophy quite prevalent in the financial planning sector, rightly underscores the need for saving on a regular basis. Also, making and keeping to a given budget is what enables people to spend less than they earn. It implies setting aside a certain percentage of one’s earnings for funding energetic initiatives and then working around with the leftovers. Most of the time, households make budgets but do not stick to them. Proper records should be kept to monitor performance to budget and adjust where necessary.

5. Conclusion

Personal finance management is essential for all types of individuals, whether they belong to the labor class, organization class, or someone else. It is also important to recognize how important it is for economic growth. Basically, personal finance tracking is a method of maintaining finance records. It is a technique of saving money and at the same time making money. The two possibilities are fulfilled by good finance management that is effective, efficient, and cost-effective to consume money, both positively and wisely. It also has a great positive impact on people and possesses impending dividends. In addition to financial factors, personal finance management solutions can also work wonders by enhancing people by reducing structure in uncertain times. In general, promoting financial conditions that develop a sense of financial discipline and self-assurance.

The importance of personal finance management is well-acknowledged, but a majority still wave off the idea. However, even if you are not comfortable managing money, you must learn to do less. The more you ignore the issue, the more problems start to pile up and you will soon end up mounded with debts (if that is not the case already). False beliefs and misconceptions are another factor that may cause other mistakes. Every mistake that affects the financial health further poses a risk of getting rid of debts. As an individual, you can’t let your personal finances be controlled by thieves, while a superior industrial state. In addition to financial planning for various companies, organizations, businesses, and different kinds of economic and financial structures, governments are also involved in other financial positions.