|
Personal finance is the application of the principles of financial
economics to an individual's (or a family's) financial decisions.
It asks, "How much money will you need at various points
in the future?" and "How do you go about getting
that money?".
It deals with questions like:
* What is my annual income?
* How can I increase my income?
* What are my annual expenses?
* How can I reduce my expenses?
* How do I best budget my available income each year?
* How much money can I save each year?
* How much will I accumulate over my working lifetime?
* Will this be enough to support me after I retire?
* How much will it cost each year after I retire?
* How many years will I be retired?
* How do I pay for large expenses (like children's education,
or buying a house) when they arise?
* How can I reduce my financial risk? Through insurance? Through
pensions?
* What do I do with the savings that I have accumulated? What
is the best way of investing this capital?
* How much debt do I have? What are the monthly debt servicing
payments?
* What is the value of my assets?
* What effect will taxes have on these issues?
* How do I minimize the taxes I must pay?
* What effect will inflation have on these issues?
* How will these issues change as I go through the stages
of my life?
A Question of Time
Personal finance is a detailed analysis of financial flows
at various points in time. For example, we may receive employment
income today, but have to pay college tuition fees next year.
Mortgage payments, interest earned, insurance premiums, and
numerous other financial flows are recurring events that repeat
at monthly or yearly intervals. Because these involve several
time periods, we have to ask "What role does time have
in these financial calculations?".
We know that if we deposit money in a bank account we will
receive interest. Because of this, we prefer to receive money
today rather than in the future. Money we receive today is
more valuable to us than money received in the future by the
amount of interest we can earn with the money. This is referred
to as the time value of money. To adjust for this time value,
we use two simple formula. The present value formula is used
to discount future money streams, that is, to convert future
amounts to their equivalent present day amounts. The future
value formula is used to convert today's money into the equivalent
amount at some time in the future.
All personal financial planning done by professionals uses
these time value formula, as well as several more complicated
variants of the formulas. To ignore the role that time plays
in financial planning is to ignore one of the most important
principles of personal finance.
• Estate planning
• Investment
planning
• Retirement planning
See also:
* Accounting software
• Adverse Credit History
• Annual percentage rate
• Interest rate
• Credit Counseling
* Credit card
* Credit card debt
* Credit repair
• Credit Score
* Debit card
• Debt
Consolidation
* Equity investment
* Finance software
* Insurance
* Investment
* Mortgage
* LDS-oriented Personal Finance Course
* Retirement plan
* Social security
* Wealth
See:
* 529 plan (college savings)
• Student
Loan Consolidate
* Budget
* Credit & Debt
* Mortgage
* Direct deposit
* Education Savings Account (ESA's, FKA Education IRA's)
* Employment contract
* Commission
* Employee stock option
* Fringe benefit
* Health insurance
* Salary
* Wage
* Social security
* Insurance
* Paycheck
* Predatory lending
* Retirement plan
* 401(a)
* 401(k)
* 403(b)
* 457 plan
* Individual Retirement Account
* Roth IRA
* Traditional IRA
* SEP IRA
* SIMPLE IRA
* Conduit IRA
* Pension
* Tax advantage
* Wealth
* Personal Finance software
* Comparison of Personal Finance software
* Investment club
•
Bankruptcy
• Foreclosure
• Liens
•
List
of Finance Topics
This
article is licensed under the GNU
Free Documentation License.
It uses material from the Wikipedia
article "Personal Finance".
persoanl,
presonal, peronal, personla, fiance, financ, fnance, finnce,
finace, finnace, finanec, finane, faince,
|
