What is personal finance? Well, personal finance simply is the overall financial management that an individual, a family unit, or an organization performs during their lifetimes to plan, save, allocate, and spend money, taking into consideration various financial risks and potential future life outcomes. And one of the main objectives of personal finance is to ensure that you are financially prepared for whatever life throws at you. As well as providing a safety net of finances for your family in the event of your unexpected demise, it is also important to ensure that your children can carry on living a decent life despite not being able to attend to all of your financial affairs. But where and how do we start?
Personal finance starts at home in the budgeting of your income. Some would say this is the most important aspect, but there are actually many other factors that contribute to a sound personal finance strategy. In fact, budgeting and forecasting are two very important elements when it comes to personal finance. The ability to forecast your financial needs will allow you to know what savings goals you should set for yourself and your family at specific points in the future, as well as help you develop a realistic savings and investment plan for retirement planning.
The other major aspect of personal finance that goes far beyond budgeting and forecasting is the process of saving for emergencies. The ability to save for emergencies is perhaps the most important aspect of personal finance. In this regard, you will want to consider investing in your child’s education through scholarships and bursaries, or possibly setting up a trust fund to help fund your children’s education in the event of their untimely death.
However, there are many ways in which you can save for your children’s future, without becoming obsessed with saving for your retirement. One way is to use your discretionary income to supplement your current income by investing in things such as the stock market or real estate. Another is to use your credit cards for every purchase you make, which is one of the largest expenses that young adults have every month. Finally, you can put aside a certain amount of money for retirement each year, either as a percentage of your annual income or as a lump sum. If you wish to do so, you can even take out a Roth IRA. All three of these methods will help you to build up a foundation for your retirement savings, which will allow you to have peace of mind even if you’re not saving for your retirement.
The second method of saving for your retirement involves using your discretionary income to invest in your retirement. A great way to do this is to invest in stocks and bonds. This can be done either passively (by making investments each month on your own) or actively (through investing in mutual funds, etc.), depending on your preferences. Investing in stocks can make you a great nest egg for your later years, while bonds can provide inflation protection during the years after you retire. In terms of long-term goals, both stock investments and bond investments can be used for long-term retirement planning, but your financial experts may recommend investing in one or the other.
Your third and final step in building your savings is budgeting. This means having a plan that outlines how you are going to reach your goals for saving for your retirement, both in dollars and in terms of scale. You can choose from the three key personal finance areas of: assets, investments, and retirement income. Assets can be any single item, such as a home, car, jewelry, or even a collection; investments can be bonds, stocks, mutual funds, or insurance; and retirement income can be social security or other funds that provide income during your retirement years. By having at least three key areas in which to define, you can begin laying the groundwork for your future. Budgeting is a key component of personal finance, so make sure that you understand it completely before you begin.
These three steps are just the beginning of building your retirement nest egg, however. The template message that follows offers other important advice on how to use your savings and investment dollars for personal finance and real estate planning. The message advises you to begin investing early, manage your spending, and to educate yourself about retirement planning, including living expenses and what to expect when you retire. All three of these suggestions are crucial to reaching your financial goals, so feel free to follow the template message as you set them forth in your own personal financial education.
While we can’t give specific advice on how to set up personal finance and savings plans, we can tell you that they are vital to reaching and maintaining the type of lifestyle you want to live when you get older. If you want to enjoy your golden years without living in perpetual debt, you will need to take a more active role in managing your money. While we don’t advise using a credit card or loans to fund your retirement, the money can be wisely used to invest in your goals, buy real estate, and build your nest egg. When you have sound financial goals and an effective way of achieving those goals, you’ll be happier, healthier, and you’ll be able to enjoy retirement with less of the angst and stress that come from constantly worrying about where your money is going.