Personal finance - What are they? objectives, planning, examples, and more

Personal finance - What are they? objectives, planning, examples, and more
Posted on 07-03-2022

personal finance

Subdivision of traditional finances in charge of analyzing the use of financial resources at a personal or family level.

What is personal finance?

Personal finances are a subdivision of traditional finances in charge of analyzing the acquisition and use of financial resources by individuals at a personal or family level.

They are the study of money and the set of decisions that are made with it, including investment, spending, and income. Therefore, this type of finance focuses exclusively on the management and acquisition of the different types of financial resources in the family nucleus and at the personal level of the individual.

This concept is of great importance since a correct use of personal finances provides effective tools that will allow the individual to act in a timely manner in any financial situation, since it allows him to analyze and study the data that intervenes in his financial resources, significantly influencing in the result of their monetary investments and reducing the margin of error.

personal finance goals

The main objectives of personal finance are listed below:

  • Generate greater use of investment opportunities.
  • Promote a steady stream of income to the protagonist.
  • Promote the analysis and study of the variants and areas related to personal finance.
  • Anticipate the different situations in which the individual may need an amount of extra money.
  • Provide tools to carry out planning for the timely and correct use of financial resources.
  • Boosting the family and personal economy.
  • Analyze the personal and family environment, in order to reduce the margin of financial error.
  • Provide the necessary information to be able to enjoy a full life and without financial worries.

Personal finance planning

The phases of the personal-finance planning process are listed below:

1. Identify priorities

By making a list of priorities, the processes that are being carried out are identified and found. In this analysis, it should be taken into account that these processes must have quantifiable characteristics if you want to make optimal use of personal finances.

For example, a car entails a certain periodic gasoline expense, a periodic maintenance expense, a certain tax expense, however, it could also generate some savings compared to the use of other types of transport, these variables must be measured and compared to make the best decision.

Likewise, the payment of other expenses such as apartment rent and utility bills should also be considered.

2. Study the financial situation that is available

In this step, the financial situation of the family or personal nucleus must be analyzed, identifying the sources of income and all the expenses that are counted, as well as the savings and in general the patrimony.

Based on this, a result of the monetary balance is obtained, this result provides the necessary clarity regarding the available financial resources.

3. Determine financial goals

The objective or goal is chosen, taking into account the previously calculated financial situation, this objective must be punctual and realistic, since, also, the factors that may hinder or optimize said objective, increases, sudden layoffs, illnesses, extraordinary events, bonuses, among others.

For example, an individual wishes to increase his annual income by 10% or reduce his expenses by 40%, he must take into account all the factors that have the strength to intervene in said objective.

4. Determine a time period

Based on the established objective, it is important to define a period of time in which these goals will be developed.

In this process, it must be taken into account if the objective is planned to be executed in a short, medium, or long period since this will be relevant in the subsequent planning stage.

5. Methodical Strategy

In this step, the previously identified information is taken into account, and based on this, the most appropriate strategy to execute is designed.

To design this strategy, the individual must study all the information present very well, since, in it, there are key and highly considered tools so that the plan provides the best possible results.

6. Execution

In this stage, the execution of the strategy carried out previously is carried out. This execution must be supervised and monitored, since, if an altercation occurs, the subject will be able to act in time, intervening in a timely manner in the face of said inconvenience.

7. Analysis of the result

The last step of the planning is to analyze the result obtained in the previous execution process, in areas of determining the strategies to maintain or improve the process.

personal finance examples

Here are some examples of personal finance:

  • In order to acquire life insurance, an individual plans his personal finances to reduce his expenses by 10% and be able to acquire said insurance.
  • An individual with the goal of saving for his daughter's college studies decided to plan his personal finances and save 8.5% of his monthly income for the next 5 years.
  • In order to reduce household expenses, an individual carries out a financial strategy to reduce expenses from $3,000 to $2,500 last month.
  • In order to save money to buy a car, an individual executes a strategy, planning their personal finances. This strategy was based on saving 7.5% of their income and reducing their expenses by 10%.

 

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