The economic destiny of a person is largely related to the way in which he manages his personal finances. For this reason, it is very important to know this area of the economy and, to begin with, it is appropriate to understand the basic concepts that are used, what are the objectives of finance, and what procedures are followed in general terms to execute a personal financial plan.
Personal Finance Definition
Personal finance is the money management that a person does to manage their own individual economy efficiently. It consists of all the actions to reasonably save and spend the money you have, considering those events that could occur and negatively affect the individual’s monetary resources.
Individual finances also include the assets that a person has under their control, such as savings funds, insurance, credit, and any type of monetary investment in general. Which, the way to manage all the money that is possessed, regardless of how it is materialized, is part of the individual economy of each person.
What are the goals of personal finance?
To fully understand personal finances, it is important to know the objectives that are set out in this management, which are:
Personal financial self-analysis
As a first step, personal finances help to consider the current situation in which an individual finds himself with respect to his money and his material goods. This point allows you to record the savings that you have, the economic income, the expenses that are habitually made, and the budget that is allocated to certain products in a certain period of time.
Know exactly our expenses
Personal finances help you to know, without much margin of error, the expenses that are made during a specific period of time, generally a month. It is noteworthy to mention that many people believe they know exactly the expenses they make, but it is well known that what is known as ant expenses (small unnecessary purchases) affect the majority of people, which has a considerable impact on their economies. individual.
Prepare for emergencies
Likewise, finances help you prepare for those events that may arise and therefore require monetary resources to cope with the situation. Having an economic emergency plan can mean survival in the event of high financial risks.
Specify what your future plans are
Having enough income to be able to comfortably budget for future expenses is an important anticipation task in the life of any person. There are many elements that a human being, such as a need or desire, must acquire as time progresses, and having an economic plan to meet these needs is a substantial plus that personal finances give you.
Now, what are those needs? It all depends on each person, but here are some examples to give you an idea:
- Home: having enough money to buy a house according to your tastes and requirements is a phenomenal achievement.
- Traveling: Many people consider traveling is a fundamental activity that every human being should experience. Budgeting for these trips to allow you to see the world without affecting your finances is highly rewarding.
- Occupation: good management of finances increases the possibility of performing in the activities that you like the most.
- Free time: having to dedicate less time to work due to good management of the individual economy, offers you more free time that you could use in other activities that you enjoy doing the most.
Procedure for planning personal finance management
In a generic way, to carry out an individual economic plan, the following points are followed:
- Diagnosis of the current financial situation.
- The goals that are to be achieved in the short, medium, and long term are established.
- Creation of a plan to achieve the objectives set.
- Carrying out the activities contemplated in the created plan.
- Analysis of the situation from time to time to evaluate progress, and if necessary, make adjustments.