With the development of the society, more and more people realize the important of personal finance. However, people are not familiar with personal finance. Although they know what they can do, they don’t know the details of the personal finance. Many people who like to buy anything they don’t know how to control the reword. When the day reaches the half of the month, they suddenly find that there is rarely money in their pocket. When people ask them where their money is, they don’t know. It is very important for people to know what personal finance is. Personal finance is not only for the household but also for everyone who want to make more money or save money.
There are a lot of branches in personal finance. Therefore, people should be familiar with it at first. People should know what are personal finance, the importance of personal finance, and the foundation of personal finance. Financial planning is also a important way to go through personal finance. The personal financial statement could help financial planning work well. However, if people just think how to make money, it is not enough to make up the personal finance. It also need save money. If people don’t save money, it is useless for people to do personal financial planning. In a word, personal finance contains three parts that are what is personal finance, personal finance planning, and saving money.
The Definition of Personal Finance
What is finance? Bach said: “The management of large amounts of money, esp. by governments or large companies” (2003, p71). It shows people the definition of finance. So what is the definition of personal finance? What will personal finance bring to us? People learn how to enlarge the cash flows and then maintain their operations and offer for their interests is personal finance (Altfest, 2007). The cash flows will decide people’s personal finance. It is the key to make someone’s personal finance better or not.
Personal Financial Planning
Financial planning could make people reasonably manage their money. Sometimes, if people don’t use financial planning, their financial situation will be in trouble. People live in a fast-tempo society which has a growing number of financial alternatives offered to us, so financial planning is important. In the meantime, information through all kinds of media, as well as the internet, is able to help us decide the selections. Doing wise planning makes people reach their goals. For financial planning, it includes getting penetration into the efficient way to execute a task and then dealing with it in a reasonable, regimented way, makes people to go for far more targets (Altfest, 2007). People could use a lot of information to make financial planning. Financial planning has its system to make people decide what they could do.
The Foundation of Personal Finance
Personal finance likes the knowledge that people could learn. However, personal finance needs some elements to run it. Therefore, work, investment, and the market found the foundation of the personal finance. If there is no this three factors, the personal finance will have no space to develop. These factors related by people’s life, personal finance now don’t look just like concepts.
If people have no jobs, they will have no income. The personal finance will be in trouble or no money. If people’s jobs are satisfying, demanding, and economically rewarding, people will feel happy. But if people’s jobs can’t gain anything, everything for people will mean nothing. Nobody can deny it would be difficult to find the right mixture of factors for people’s working hours, but the goal is desirable (Rosefsky, 2002). That’s why people need work. Then, income will bring people other income not only work income but also investment.
If people have money, the first thing they want to do is the investment. It will be the efficient way to make money. There are two fundamental exits for investments: stocks by which the investors buy a share in their own rights of the company, and debt when an investor lends to a cribber return back for interest. Therefore, there are three financial markets: the foreign exchange markets, the stock markets, and the bond markets. The main factors existed for personal savings and the major method of financing agreement of no matter what size were established today’s important markets (Fleuriet, 2003). Investment could be viewed as the most important aspect on personal finance. It makes up the foundation of personal finance.
Nowadays, if these factors just contain money and the idea of investment, they will be not enough for people to do personal finance. People should rely on the market. People invest for many kinds of reasons. People could put money on homes so as to enhance their life level, or they could put money on their education so that they can easily find a high income job. In these cases, buying durable goods and potential to improve labor as investment contributes to the whole health of the economy. In some respects, all types of investment are set in the same economy, economic opportunity, cheap goods and services, and greater wealth (Everyday Finance: Economics, Personal Money Management, and Entrepreneurship, 2008).
The market is the place that is offered people to invest. The market plays a role as a foundation of personal finance. Work creates the money, and then people own their money. Money creates money. So they realize the investment that could bring those benefits. Investment contains a lot of types. However, the market offers them a place to invest. These factors are important for people to do financial planning.
The History of Personal Financial Planning
Good financial planning makes people do more than just work. Benefits are the key for financial planning because it will bring important profits for the world. When people understand that personal financial planning can match their desire, will have significant payback for others. Having financial planning will allow people to put all of their hard work in hand. In working time, financial planning also makes people more effective when the household and business meet a lot of problems in the same situation, and it is useful for job-related situations when people use many personal financial techniques (Altfest, 2007). It is why financial planning is important. People make financial planning to better control their money. Financial planning has a long history. Financial planning was not for every person at first. There has been personal financial planning (PFP) for many years. Before the 20th century, it was just considered that very rich people can be recommended by their accountants, lawyers, insurance agents, registered representatives, bankers, or investment advisors (Altfest, 2007). So it was just for rich people.
These people always had much money and it would be easy to earn more money. People are not familiar with how personal financial planning started. They realized that they could learn some financial knowledge. About in 1970, a big group of people began touching these services. A lot of people who were middle classes had the flexible wages and were willing to improve some complicated services and financial tools. A new job named individual financial schemers appeared. It could be regarded as professionals who could give people suggestion that could solute a variety of financial problems and adjust the actions of their customers’ other consultants (Altfest, 2007). With the development of the society, more and more people know what is financial planning. At that time, a new profession was born in people’s life.
The Process of Personal Financial Planning
Personal financial planning is a big part of personal finance. It will give people more details to know what they should do. Personal financial planning can be considered as the way that could look forward to and plan people’s future proceedings to arrive at their aim. When planners participate in financial planning, it is also used to treat a problem or to form a plan for the future (Altfest, 2007). However, it also needs a long time to understand how to use this personal financial tool. Planner should participate in personal finance to help people manage money. At first, people should know what the range of activity is. Only do they realize the range, people will know the way to manage them. Building the range answers the question: Which kind of a broad area should the planner analyze? It is for financial planning practitioners. It means the precise services that they will offer. For instance, are people focusing on saving money for a decrease expense on a family or are people inspecting the whole financial planning course (Altfest, 2007)?
If they make sure the range of activity, they could do the next step. Secondly, information will provide people the data about their personal finance. People could use this information to manage their money. Planners need to collect some information so that they can solve the problem. Planners store up statistics on family financial property and information from income and expenditures. Additionally, they exploit information on restrictive elements such as health, time available, and patience for risk (Altfest, 2007). Everything that is related in people’s life will affect the planning of personal finance. It is important for people to collect. Third, the goals are important for people to do personal financial planning. If people have no goals, it will be useless to plan it. A person or household can have many kinds of goals in a lot of points at the right moment. The goal is also different from the household. The bottom of the goal, however, it is possible to the highest standard of living. Devoting time to work and different leisure activities and costs will depend on every person (Altfest, 2007).
In fact, people have different goals. It will depend on the different situation to decide it. Then, if people do the all steps above, they could utilize all information in doing financial planning. Analysis is the key for this step. The equilibrated sheet, the situation of cash flow and other financial situation were made by planners who received the statistics. After these actions are finished, people began to study the statements and knew all of personal financial steps. What makes the resources accessible? For instance, whether household owns a high-raising balance or whether the balance lists alarm is at the level that people don’t borrow money? If there is a lot of debt, whether cash flow shows that paying somebody’s debts could be a problem in the future? Planners consider and include all main kinds of financial planning (Alrfest, 2007). The information of cash flow is a standard of doing personal financial planning. Then people could analyze the cash flow. Fifth, it is the important step for people to manage the plan. The focus on the accident problem is that people should do it.
It could be a lot of different methods to deal with a problem. It could be had a huge of products available and lots replaceable services or practices to request. For instance, if the customer’s aim is to save more money, it can be finished, only to do through putting more money in a saving account, buying an overall life insurance policy that replaced a term one, or trading a bigger house that there is a greater hypothecation paid in cash each month can be regarded as a kind of savings (Alefest, 2007). The example gives people the idea how to deal with a problem. The development of personal finance planning will be a good chance for people to realize what they need to do. Sixth, when people plan financial planning, they will do it. The accomplishment will give people time to finish the planning.
The next step is implementation. It should be taken the best method and getting it into practice. Although it looks easy, it is hard to finish for normal people. It may be because simple inaction or some decisions about saving money, and so on will be painful when these actions are processed (Altfest, 2007). Saving money is the way to do the planning. People should pay more attention on practice of financial planning. Last but not least, Change in people’s life will bring difficult in the planning. No one can ensure what will happen in the future. These effects will change all of planning processions. Life situations change–some people get divorced, other people get married, many have children, and incomes change, too. Additionally, the personal target sometimes may take a person age into the consideration.
It also could be changed in the environment we lived. In consequence, all of the planning process should be noticed for the matter altered in case and regular inspection to ensure that they keep their latest situation (Altfest, 2007). Only do people keep watching the planning in process, the change will not be a problem. The personal financial planning will finally be successful. Personal financial statements are the standard to measure personal financial planning whether it is the success. People do statements to find where the problem is in the planning or daily life. Personal financial statements universally exist after the merger of the assets and liabilities of the husband and wife. In these cases, it maybe is helpful to decrease the distance in each personal interest in the property in an extra statement or in a reminder to the financial statements (Madray, 2009). Personal financial statements give people the way to think where they make mistakes. The statements together help people save money.
When people lend money to their friends and the deadline was passed, they were hard to ask someone who borrow their money to return their money. It becomes a problem in personal finance. It is the first rule that open and honest communication to financial property. When money is thought that can’t talk in daily life, then people’s personal finance will be a bad consequence. Talking about money frequently will reduce the argument and parameter; will encourage cooperation to achieve people’s financial goals and objectives (Duguay, 2003). So talking money will save people money. It could improve personal finance. Saving money is the key to managing good personal finance. It is a part of the personal finance. Sometimes, people can’t invest because they don’t save money. About six hundred people who reflected a 2002 “What Works” survey presented their opinion that saving money was the best way to make the investment successful. A middle-aged investor now living overseas wrote, “This is vitally important: saving today so you can have financial success tomorrow” (Clarke, 2003, p33).
People know the importance of saving money. Therefore, they can make good investments and manage good personal finance. In a word, personal finance is a long term procession in people’s life. With the development of the society, people find the important of personal finance, and they know what personal finance is. They realize that if they don’t work, they will have no income for them to make more money, and the investment and market is the key for people to make money. Then, people gain the knowledge from the personal financial planning and practice how to make the planning. The steps lead people to find a way to solve the problem in their personal financial planning if they do it like planners. They will receive more profits than they just imagine. Although the planning is complicated, it can’t stop people to do this.
The profit of personal finance attracts people do. So personal financial planning is not only for the rich but also for every person. On the other hand, if people just think how to make money, it is not enough to reach a good personal finance. Saving money is a way to reach the goal of personal finance. If people can’t make money, they can save. The reason is that personal financial planning just tells people how to do or make money. Although making money will supply people to have a good life, if they don’t notice how to use, it will also be a problem for individuals. Personal finance is a big topic or issue in people’s life. However, when people are familiar with personal finance, People will have abilities to be good at and control it. Personal finance will never be the rich’s patent. Personal financial planning, the foundation of personal finance, and economize make up the personal finance.
Altfest, L. J. (2007). Personal financial planning. New York, NY: McGraw-Hill Companies. Bach, D. (Ed.). (2003). 1001 financial words you need to know. New York, NY: Oxford University Press. Clarke, A. S. (2003). Wealth of experience: Real investors on what works and what doesn’t. Hoboken, NJ: Wiley. Duguay, D. (2003). Don’t spend your raise: And 59 other money rules you can’t afford to break. Chicago, IL: Contemporary Books. Everyday finance: Economics, personal money management, and entrepreneurship. (2008). Detroit, MI: Gale. Fleuriet, M. (2003). Finance: A Fine art. Chichester: Wiley. Madray, J. R. (2009). Compiling personal financial statements. Lewisville, TX: American Institute of Certified Public Accountants. Rosefsky, R. S. (2002). Personal finance (8th ed.). New York, NY: John Wiley & Sons, Inc.