A large number of people are always in the financial rat race imbroglio. These people always struggle to make ends meet. Their monthly pay packet is not enough to meet their most pressing needs, not to talk about engaging in the luxurious things of life. Well, the reason for this is not far fetched They don’t know the fundamentals of money. They don’t know how to manage their money to yield their desire results. Know all these require a little knowledge of personal financial planning.
Definition of Key Elements of Personal Financial Planning
Personal financial planning entails a number of key elements like budgeting, savings, investments, income, expenditures, assets, liabilities and insurance. Income is the money that comes into an individual pocket at a certain period of time on a regular basis. This period of time can be weekly, monthly, quarterly and yearly. Expenditure is the money that leaves an individual’s pocket on a regular basis. This entails living expenses like money for food, cloth and various bills.
Asset is virtually anything that brings money to your pocket. Shares, stocks, real estates and other forms of investments contribute to the asset profile of an individual. While liability is anything that does not add money to your pocket presently and in the future. Liabilities always remove money from your pocket.
There is a thin line between assets and liabilities. Some goods and services can be either liabilities or assets depending on whether they contribute financially to the individual. For example, a car bought for luxury purpose is a liability to the individual. It always consumes money for servicing and fuel without adding to the finances of the individual. But the same car bought for business purpose will contribute to the finance of the individual. There the car is an asset to the individual since it adds more money to the individual.
Understanding how the Key Element Work
Understanding these concepts and how they fit in together is very essential to enjoy the numerous benefits associated with personal financial planning. The first step to get out of the financial rat race is budgeting. Drawing up a sound budget will make a person to plan how to spend his/her expected income. It is essential for an individual to spend less than his/her income. Spending less money than one earns enable the person to have savings. A solid budget also enables a person to keep tabs on his/her spending. Tracking your spending pattern is very essential to plugging spending loopholes and minimizes wastage.
The next step is to investment your savings. Investment quickens the escape from the financial rat race. Good investments will make your hard earned money to work real hard for you. Thus as you are working for your money, your money is working for you. There are numerous investments out there that you can invest in. The stock market is a very good investment platform that will make you achieve your financial goals on time.
Making wise spending decisions will also hasten your escape from the financial rat race. You should always buy more assets and fewer liabilities. More assets will guarantee more money to your pocket. While liabilities act as a drain pipe to your pocket. Therefore investing in assets will take you from the financial rat race traps experienced by many people out there.
The financial rat race trap is not a good to be. Many people are struggling to get out from there. Solid personal financial planning put you in a good place to escape it. This is why everyone is advised to have one.
Author’s Bio: James Pattrick is known for writing informative articles on finance and related issues. To get answers to further queries visit the website PayDayLoans.org.