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• Wednesday, 22 May 2013

Personal Finance 101- The Basics

Personal finance is as important today as the basics of survival were to people in prehistoric times. In that far-off age, an individual’s main concerns were food, shelter and the raising of children to adulthood. Today these concerns are still paramount, yet we depend on money to ensure they are satisfied. As such, establishing a viable system of personal finance is crucial to our survival in the modern age, and by applying the basics of personal finance we can ensure that we not only survive, but thrive.

Since our modern lifestyles run, for the most part, on money, a secure and reliable source of income is needed to provide the “fuel” to keep things running smoothly. Just having an income is not enough, however, and this is where the basics of personal finance come into play. Foremost among these is establishing a workable budget. A budget sets out individual and family financial inflows and outflows, typically over a monthly time period. Setting up a budget should be done carefully and thoughtfully, taking into account the myriad of daily expenses as well as set, regular monthly payments on mortgages, utilities, taxes and savings. Those daily expenses quickly add up and should be scrutinized closely when attempting to reduce expenses. Clipping coupons, seeking out sales and holding back on impulse purchases can become habit forming, and are a great way to add discipline and responsibility to one’s personal finance situation.

Planning is a chief component on personal finance, and it demands setting long term goals. These may include college tuition costs for growing children, saving to purchase a house, and retirement planning. Your financial advisor or bank can probably assist you with setting up long term savings plans that will cost little in the short term but pay off down the road. The great advantage many of these plans offer is their tax deferment structure. In effect, the government is rewarding you for being a wise and prudent financial planner.

This is what personal finance basics really come down to: being wise and prudent with the way you invest, save, and allocate the money you earn. After all, in today’s and tomorrow’s world, the fiscally fittest are the ones who survive!