Everything you need to know about personal financial planning.
According to the Investopedia, “Personal finance is a term that covers managing your money as well as saving and investing. It encompasses budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and estate planning.”
Personal financial planning is a systematic approach whereby an individual maximizes the existing financial resources through proper management of one's finances to best achieve his/her financial goals and objectives.
In personal financial planning, firstly you need to have goals, such as buying a house, funding for education, or funding for retirement.
Second, you need to have a budget that lists all your incomes and expenses. You need a budget to control your expenses, so that you have more savings for emergency fund (usually 6 months of living expenses), insurances (usually life insurance, while car and house insurances are statutory) and investments.
Third, you need to have a plan for your debts, such as credit cards, mortgages and loans. It’s best to pay off bad debts (higher interest rate without generating income) but keep good debts (can generate income significantly higher than debt interest).
Fourth, you need to have a plan for your investment portfolio, which is the key for wealth accumulation.
Finally you need a retirement plan for a happy retirement. Some people may need tax and estate planning if they are wealthy, but they need to hire professionals for the planning to work. For all the other parts of the personal financial planning (goals, budget, insurances, debts, investment, retirement), most people can do it themselves.
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