Personal finance basics

January 22, 2021 by Martin Sukhor

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Personal finance basics are basically how someone can manage money, to create a healthy and safe overall financial condition. The sentences personal finance is often talked about nowadays. As with other trends that happen, the phrase personal finance might make people frown through various terms that seem complicated and less practical to understand. And what

Personal finance basics are basically how someone can manage money, to create a healthy and safe overall financial condition.

The sentences personal finance is often talked about nowadays. As with other trends that happen, the phrase personal finance might make people frown through various terms that seem complicated and less practical to understand.

And what is most felt in various discourses around personal finance is the never-ending presence of money, money, and money. What exactly is meant by “personal finance” and what is its use for a person?

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Personal finance definition

The definition of personal finance is basically the science of managing money or finances. This one activity involves all financial decisions and various activities carried out by an individual or in a larger economic system such as a family.

The financial practices discussed here include how to earn income, saving techniques, how to invest and also spend money or possessions.

Personal finance histories

A long time before, discussions about personal finance looked unattractive and tended to be boring. On the other hand, when it comes to money, people tend to take practical steps rather than having to be busy thinking about it.

However, it cannot be denied that there are many topics in personal finance that are important to discuss and share with a broader audience considering that in the current global economic scheme.

Where the practice of sharing economy can be present without being invited even though, everything is related and takes place calculation. a very short one.

Therefore, everything that has to do with money is the subject of personal finance, which includes purchasing financial products such as credit cards, home insurance, housing loans, and various forms of investment as well as investment in motor vehicles.

On a broader and more impersonal scale, banking is seen as part of personal finance, whose forms of activity include financial checks and savings opening and, most recently, online payments and mobile payment services such as PayPal or Venmo.

Behavioral Finance

Apart from personal finance, another relatively new branch of finance is behavioral finance (BF). This science discusses aspects of the behavior of decision-makers, especially investors in the capital market or the application of psychology in the financial world. Previously, it was assumed that there was perfect information, perfect rationale, and perfect interest in financial markets.

In practice, there is no complete information, investors face bounded rationality, and there is a social side to every human being. As a result, investors often use a practical approach (heuristic) and experience bias (errors) in decision making. These biases are very numerous and can be grouped into two, namely cognitive and emotional.

Why personal finance important?

One of the important features of personal finance is personal financial planning. Whose scope includes analyzing your current financial condition, predicting long-term and short-term needs, and executing a plan to meet these needs within the limits of the individual’s financial condition.

And, like any other careful planning, financial planning depends entirely on a person’s level of expenditure, income, the fulfillment of life necessities, and also the individual’s personal desires and goals. And, among the most important aspects of personal finance, there are: assessing expected cash flows; buy insurance, calculate and determine taxpayer value, savings, and investments, as well as retirement plans.

It is undeniable that the role of personal finance is very large and important in opening discourse about the financial world. This is none other than because personal finance covers a lot of and deals with theoretical and practical matters related to finance such as:

#How to prepare a budget
How does credit work
#How to check credit report
How to deal with debt
#How to be able to retire comfortably
How to choose a health plan
#How to buy insurance
The importance of real estate investing

How to prepare a budget

Budget is very important to know your financial situation because will calculate how much you earn each month, and how much you spend.

How does credit work

Credit is a contractual agreement where the borrower gets money or something according to current calculations and agrees to pay the money later with the value of money at that time.

The form of credit can be in the form of credit cards, loans, home loans, credit or student loans.

How to check credit reports

The only way to maintain the health of our credit status is to regularly verify the accuracy of our credit reports. It is therefore important that you ask for a copy of your credit report.

How to deal with debt

Think of paying off debt as a long-term plan, but you should also set short-term goals that you can later meet.

How can you retire comfortably?

You can calculate how much money you need in order to live comfortably and learn which financial resources can make your hopes come true later.

The options range from simple savings, certificates, retirement plans, bonds, stocks, etc.

How to choose a health plan

To find out which health plan is right, explore the various schemes available and learn more while adjusting it to your condition.

How to buy insurance

Learn more about what kind of insurance they should buy or how big their policy should be in the future.

The importance of real estate investing

Maybe not all individuals like to have additional houses as investment material or just as reserves and savings for posterity.

However, land and houses are never directly detrimental. It’s just that, if you are interested in buying a house just for a quick sale, then that’s an unwise decision.

Pay close attention to urban planning later, because that is what will make the price of houses and land crawl or jump more expensive.

Personal finance budget

A personal finance budget is a financial plan for the future by allocating income from personal work for spending plans, savings, or to pay off debts if you have debt.

In making a personal finance budget for the future by considering the expenses in the previous month to create, use, and adjust a personal budget.

To create this personal finance budget, you can create a spreadsheet table by inputting income and expenditure data.

But you can also create a personal finance budget using a pencil and paper to input your income and expenditure data. This method is considered more traditional but will give you a better understanding of your budget and income.

How to creating a budget

Even though you are currently single, getting used to making a personal finance budget can help control your finances. This good habit will help later when you have a family.

You can create a spreadsheet table to plan your budget for the next month, by looking at your total income.

The steps to create a personal finance budget include:

Write down all of your net income

Your main net income data becomes a worksheet that you input into the spreadsheet. That net income will be the main amount of your planned budget for the following month.

Maybe your salary is $ 500, but you should pay attention to tax deductions so that if you take $ 450 home with you, this is your net income.

Track your spending

It will be very helpful if you keep track of your routine purchases, for example for electricity costs, drinking water, food and so on, which are the basic necessities of your life.

Write down in a spreadsheet all your routine expenses with a budget plan that is adjusted to your total net income.

Set goals

Before you spend everything you’ve tracked, you can set short-term and long-term goals.

For example, for the short term for investment, and in the long term for the cost of children’s education, or the cost of marrying your prospective partner.

Set this goal must be a priority and beat other desires such as reducing debt.

Make a budget plan of the utmost importance

You can use and collect variable, previous month’s routine expenses to make a plan. The priority of the most important, for example, if you go to work driving a car or motorcycle, fuel is a necessity.

So if you subscribed to Netflix last month, which is only want and not a need. You prioritize your fuel needs instead of subscribing to Netflix.

Making a habit is necessary

After you create a personal budget, start by familiarizing yourself with the budget plan discipline. Because it might be vain after you have succeeded in making a budget plan, but in practice, you cannot be disciplined.

Evaluation and Control

It would be great if you always do the evaluation so that all plans will be on track.

You can do an evaluation every three months or several months. This will help you find out if your expenses are according to the budget plan or if there are other deviations.

Meanwhile, control is by recording every incoming fund and allocating it according to needs.

Personal finance software

Personal finance software is an application that can help you manage your spending budget. This can help you learn the basics of personal finance. There are various kinds of personal finance software, and users can choose according to their needs.

Even though there is free software, most personal finance software costs money. Here is some personal finance software that you can try, including a free trial.

Quicken

Quicken is a great personal finance choice for everyone. Having been around for decades has established Quicken as one of the favorite software.

There are four payment plans ranging from $ 39.99 per year to $ 93.59 per year. However, first users can try a free trial for 30 days.

Money dashboard

You are free to register for the money dashboard, they get money from providing service recommendations to users and also from anonymous use of users.

YNAB

This software is good for helping you create a personal financial literacy budget, you can learn with strict rules in building awareness of personal finance budget.

There are two monthly plans at $ 11.99 and an annual at $ 84, but you can try the free 34-day trial.

Personal capital

This software is arguably the best and free to use, you can control your finances through a single platform.

Personal finance is behavior and knowledge

Personal finance can help you become a millionaire, but it will all fail if it is not accompanied by the right behavior. In personal finance science, 20% is knowledge, and 80% is behavior.

You may have an income of over $ 20k per year, and if you make a good personal finance budget, you will be able to live for a year on your total income.

But if your behavior can’t control your expenses, always prioritizing wants over needs, $ 20k won’t be enough for a year.

So if your behavior can’t control your spending, maybe you will borrow money which will eventually become a debt burden. And you fail to become a millionaire.

Personal finance advisor

If your behavior in spending money is often out of control, it may be worth contacting a personal financial advisor.

Personal financial advisors have responsible for helping customers to manage their financial and investment portfolios in the form of savings, time deposits, investment products, stocks including property-related investments to get maximum returns by paying attention to the customer’s risk profile.

The task of Personal Financial Advisors

Interviewing the client to find out his current income, insurance, tax status, financial goals, risk tolerance, and various other information needed, to develop the client’s financial plan Answering client questions about goals, details of financial plans, and strategies.
Advising strategies for clients, in terms of money management cash, insurance, investment plans, or other fields to help clients achieve their financial goals.
Perform analysis of client financial information, to determine strategies to achieve client financial goals.
Implement financial planning recommendations for clients, or direct clients to financial products that best suit their risk and return profiles best for clients.

Personal finance management

Personal finance management simply means knowing the financial situation, in order to build assets from day to day and plan for the future.

In personal financial management has an important element of concern:

Income. Keep track of all your income deducted by the various fees that must be paid.
Cash flow. Manage to spend and plan to earn more income.
Capital. Have a certain amount of capital as remaining cash flow.
Family Security. Prepare and maintain family security, for example with insurance.
Investment. Make an investment plan to increase your money.
Standart living. Build comfort in life with wise finances.
Assets. Have assets with low risk but limited liabilities.
Savings. Have an emergency fund on hand that is easy to withdraw.

Personal finance for dummies

The popular personal finance for dummies is the work of Eric Tyson in his book which is basic advice consisting of 454 pages.

It even looks like this book is on sale via Amazon for $ 8.97 the old edition and the latest edition $ 11.79.

The key to success according to Eric Tyson is:

Take control of your finances.
Do not buy consumer goods on credit where the value of the goods decreases over the credit period. Car, Clothes, etc.
Use a credit card for convenience, not debt.
Live within your means and don’t be jealous of your coworkers or neighbors.
Save and invest 5 to 10 percent of your income.
Understand and use your employee benefits. An investment that suits you.
Avoid products with high commissions and expenses/
Research before buying
Don’t buy products you don’t know.
Invest for the long term, such as property, potential stocks.
Avoid emotional financial decisions.
Own a house.
Procurement of insurance to protect against financial disasters.
If you are married, discuss financial goals, expenses, and all kinds of things.
Prepare for a life change.
Read trusted publications that you are interested in.
Prioritize financial goals and work with them.
Invest in yourself and others.