The Importance of Personal Finance and Financial Planning
I can’t stress enough the importance of personal finance and financial planning. First you should manage your personal finances the same way you would run a business. Think about it the first thing a business does is create a business plan just as you should create a personal financial plan. If you were getting married you and your spouse would sit down and plan when you were getting married, where, who would be the best man and maid of honor. Who are you going to invite and so on so why do you want financial freedom without planning.
The next thing a business would do is figure out what assets they will need to run the business such as furniture and equipment, conveyors, machines, delivery vehicles etc. In your case you probably just have to figure out what assets you need to help you get to work such as a car and the clothes you have to wear at work and any other tools you need to do your job. While you may not need all the equipment that a business needs please don't loose site of the importance of personal finance when it comes to the assets that you do need to help you earn your income.
Of course a good business creates a budget They start with a projection of what sales will be then they figure out the cost of the product they sell to figure out what the profit margin will be. Once they know what the profit margin is they deduct the expenses to figure out the net profit. Alright I know you are saying so how does this relate to me. Think about your job as sales and the cost of your tools, clothes and your car as the cost to produce the sales. Yeah now you are getting it your bills are your operating expenses. Now to put all of this together you need to sit down and either on paper or computer list your income, subtract your expenses and you will end up with your net profit or in your case your left over income. When you take this kind of approach you can see the importance of personal finance. The Budget Kit: The Common Cents Money Management Workbook
I hope that first of all you have some money leftover and that you are putting some of that money in a savings plan. After you have put at least 10% in a savings plan you are now at your disposable income which I think you should use to enjoy yourself after all you worked hard for that money and the only way you are going to appreciate the importance of personal finance is if you get some benefit from it.
I know I’ve been joking a little bit but again I want to stress the importance of personal finance and your financial plan. It’s really not that difficult to do and you don’t have to be miserable if you do it right and you should be able to enjoy some of your money.
Businesses usually invest some of their profits and I encourage you to do the same because investments allow your money to grow at a very rapid pace that will be a very important part of your long term financial plan which will ultimately lead to your financial freedom. In the importance of personal finance lesson I'm trying to get you to learn how to manage your finances the way businesses do and to track things so you can see at all times how you are doing. If you know how you are doing you will be able to take corrcetive action quickly and avoid getting into some of the financial problems people who don't put any value on the importance of personal finance.Suze Orman - For the Young, Fabulous & Broke
I know I keep harping on the importance of personal finance but I really want you to understand how important it is for you to plan your personal finances. I decided to create the importance of personal finance lesson because people keep asking me why I kept harping on the importance of personal finance. As I contemplated that question I started to ask myself what had I done to accomplish what I have accomplished. I realized I've alwayse stressed the importance of personal finance with my family and myself so we have been able to take the necessary steps to keep ourselves on track and overcome some adversity.
The best example I can give you of the importance of personal finance is to tell you about the time I got transfered right in the middle of a down housing market and found out I owed $24,000 more on my mortgage than my home was worth. Now you want to talk about having to understand the importance of personal finance this was one of those times. I had already accepted the position in another state and I didn't have the $24,000 to pay the mortgage off and I had to figure out something to do. Because I understood the importance of personal finance I knew what my budget was and I knew the effect my new situation would have on my tax situation and I was able to come up with a solution. Understanding the importance of personal finance I decided to keep the property and rent it out because it didn't make sense to spend $24,000 and not have anything. We were able to rent a house for the same amout of rent we were able to collect for our property. Because we had an understanding of the importance of personal finance we were able to maintain our standard of living and even increase it a little because my wife and I both ended up getting a raise in our new jobs so we were only in this situation for nine months. I don't think we could have accomplished this if we didn't have a good understanding of the importance of personal finance and we didn't have a handle on where we stood with our finances.
Another example I can give you of when understanding the importance of personal finance helped me was when I was transfered and was given a flat amount of money for temporary living expenses. Since I was having a house built and I knew I would be in temporay living for several months I took the money the company gave me along with some of my own money and purchased a small house for $50,000 and lived in it until my house was built. When I moved out I put the property on the market for rent and still own that property. Because I have an understanding of the importance of personal finance I saw an opportunity to increase my net worth and I took advantage of the opportunity but if I didn't understand the importance of personal finance I would not have reconize the opportunity when I saw it.
Thinking about the importance of personal finance I'm reminded how important it is to study. The reason I feel I'm so sensitive to the importance of personal finance is because I have been an avid reader of personal finance books. I have read books that raise your awareness of the importance of personal finance and teach you about investing in stocks, bonds, mutual funds and realestate. I really started to pay attention to the importance of personal finance when I was a teenager because I watched my dad make really good money but had nothing to show for it. I don't think my dad understood the importance of personal finance nor did he care about the importance of personal finance. I think he just wanted to enjoy his money while he had it and wasn't worried about the future. Fortunately my mother and I was able to get him to understand the importance of personal finance before it was too late and we did get him to purchase a duplex that ended up helping him survive when he retired and I still own that property now that he has passed on. Unfortunately because my dad didn't have an understanding of the importance of personal finace he let a whole lot of opportunities pass him by.
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An annuity is a very important financial planning tool. Depending on your personal financial situation you may be interested in purchasing an annuity or you may have one and need to think about how to collect the money without paying too much in taxes.
A tax sheltered annuity sometimes called a 403(b) plan allows employees of certain non profit and public education institutions to make tax sheltered contributions from their income into a retirement plan. This type of plan also allows the employer to contribute to the employees retirement account. There usually is a maximum the employee can contribute to the plan however, sometimes there are provisions for a catch up plan which allows certain employees to make catch up contributions to make up for years where they didn’t make the maximum contribution.
The 401k is a form of investing for your retirement. Usually companies set up the 401K plan and allow employees to contribute up to 15% of their salary. You can choose to have the money taken from your check before taxes or after taxes. Investing the money before taxes helps you because you get the full benefit of your money before the IRS taxes you. The company will usually match what you put in up to 6% at .50 on the dollar.
Your Budget Is Your Road Map To Your Financial Plan.
Your personal financial plan should definitely include a budget. Some key things to consider are cash flow, financial planning, saving, income, and wealth management.
The first step in preparing a family budget is to first identify where you are now. You need to figure out your net worth, identify your financial goals and identify a timeline for accomplishing your goals.
Cash Flow consist of the money you have coming in minus the money you have going out to cover expenses. Obviously it’s important to have more money coming in than you have going out or at least the same amount coming in as going out.
Good debt is a very important part of your financial plan. Credit can be dangerous so in this lesson we will learn about the different types of loans you can get and how to properly use those loans. Many people believe borrowing money is bad but the truth is what’s most important is how you use the borrowed money. If you use the money to pay for items that go down in value (depreciate) then it is bad. However, if you use the money to buy assets that appreciate in value you can increase you profits with credit.
If you have not managed your credit very well you may need to think about debt consolidation. Sometimes we work so hard to do everything we can to make sure our credit is good and when we accomplish that the credit card companies are like vultures trying to extend credit to us. Unfortunately what happens to us is we start to feel good that we have a great credit rating and we start to use the credit cards.
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To start off about me my name is Gerald Moultry. My friends and family call me Jerry. I was born in New York City but grew up in Miami Florida. On this page I want to tell you a little about me and how I make my money. I grew up in Dade County which was a tough area but I wouldn’t trade those times for anything in the world because I learned so much about life and survival growing up there.
I think most of us would agree that income is one of if not the most important part of a personal financial plan. Your earnings can be passive or earned. Passive comes from investments such as stocks, bonds, mutual funds, real estate etc… Earned comes from a regular fulltime job or a business. There are other sources such as alimony and child support. Earnings whether passive or earned require specific skills.
A savings plan is a critical part of your long term personal financial plan. It’s been said for many years that you should save at least 10% of your earnings and you should pay yourself first. It’s important that you understand the rule of 72 to help you identify how your money can grow. There are many types of saving vehicles you can use to help you execute your plan. There are Certificate of Deposits, Mutual Funds, Passbook accounts, Credit Unions, 401K, and Savings Bonds.
My first recommendation is that you start with a money management plan. One of the first things you need to do is identify your financial goals and determine your time line for achieving your goals. Since you now know where you want to go and when you want to be there you need to figure out where you are now. You can’t run a race if you don’t know where the starting line is. Once you are armed with this information you can start to evaluate the types of investment vehicles that will help you stay on track with your money management plan.
An investment is an asset that is used to generate a profit through interest or capital appreciation. This is such an important part of your financial plan because as you accumulate wealth you want it to work for you so that it continues to grow. This is when you really want to put the rule of 72 to work for you. If you are not familiar with the rule of 72 refer to the saving plan lesson: Rule of 72 There are many different options available, so you have to decide your own level of experience and your tolerance for risk. Remember the higher the expected return the riskier the investment is likely to be.
There are two types of stock; common stock and preferred stock. Common stock caries voting rights and simply allows the investor to buy a portion of a company. The owner of common shares gets one vote for every share they own. Publically traded companies are required to have shareholder meetings every quarter. At these meetings share holders are allowed to vote on the changes that the board of directors are recommending. Basically stock share holders get to decide the most important company decisions.
We are going to learn about an investment portfolio. Professional manager’s focus on balancing their assets to help control risk. Risk management is a very important part of a good investment managers responsibility. When choosing a broker you really need to check their past record and try to evaluate their risk results record. Investments such as real-estate, stocks, bonds, mutual funds, precious metals, options etc... can be held in your portfolio. One of the most important things you can do with your portfolio is to diversify because you don’t want to have all of your funds in one sector or type of investment because if that sector or type of investment takes a sudden down turn your entire portfolio can be wiped out.
One of the main reasons for life insurance is to protect your family members from unnecessary expense when you pass along. Your chosen beneficiary can use the money to pay for your funeral, to payoff a mortgage, or just to pay day to day living expenses. The main purpose is for your family to continue to maintain the standard of living that you helped to provide for them when you were alive. The last thing you want is for your family’s standard of living to deteriorate because of your death.
Trust is an arrangement where one person or organization manages property on behalf of another. It is governed by a written document which usually is a deed. It is also governed by local law. People or organizations that can be used to manage this type of transaction are Banks, friends, family, lawyers, or pretty much anybody you choose to name. Once you name this person they have an obligation to carry out your wishes as outlined in the document.
A mortgage (sometimes called paper) is nothing more than security given to the lender to prove that they are entitled to the loan payments for the property represented by the paper. Unless you are really wealthy you can’t purchase a home without a loan. The loan allows you to control a huge asset with a small amount of money. In most cases you are required to put down a percentage of the total price of the home as a down payment on the loan. This is called leverage because for say 10% of the cost of the house you own the property as long as you continue to make your payments until the loan is paid off.
Tax planning is an absolute must if you want to execute a successful financial plan. I want to be clear that nothing I am talking about has anything to do with cheating. I personally feel that cheating is the worst thing you can do and there is absolutely no need for it if you follow some basic strategies. In this lesson I want to talk about tax deductions that can help you pay less in taxes.
SBI! Helps you start your own business on the web. Internet businesses are growing at at tremendous rate due to people being laid off from companies and companies outsourcing a lot of the administrative work. Now is a great time to get involved and create your Internet business. Like me you are probably a little afraid to make the step of spending money on something you just aren't sure you can do. I can tell you from personal experience starting your own Internet business can be done successfully and you can do whatever you are passionate about. I choose to do my website on financial planning because it's something I'm passionate about because I don't think the education system puts enough emphesis on financial planning for the average person. I really want to create something the average person can use and improve their personal life. I have met too many people making good money and doing well on their jobs but can't manage their personal finances. I have had people in senior executive positions asking me to help them create their financial plan. That's why I decided to create this financial planning website.
Inheritance tax (gift tax) can be refered to as estate tax or death tax and some people believe it's immoral because you are burdening the family after they have just suffered a loss. Nontheless, We all have an obligation to pay taxes. We can legally reduce or eliminate those taxes with a little planning.
Estate Planning is a vital part of your personal financial plan. The most important thing is you don't want to leave your heirs with unnecessary taxes and expenses.
I learned about this type of planning by reading because I felt so bad after watching some of my family members who didn't do any planning.
An IRA provides you the ability to invest either tax free or tax deferred. There are many different types of accounts but the most common are the traditional and the Roth. The type of individual retirement account you choose depends largely on your investment goals.
Retirementis a Critical Piece of Your Financial Plan
One of the things we are all taught is to work and put away for retirement and in this financial planning lesson I have to tell you I truly believe that is a worthy and necessary goal because none of us wants to work for the rest of our life.
David Bach's book talks about how to fight for your money with the legitimate large corporations who legally take your hard earned money. He doesn't spend his time like most of us talking about the scam artist out there that figure out illegal schemes to take our money. He actually explains the legal things that banks, credit card companies, cell phone companies, hotels etc.. do to take our money legally.
David Ramsey's Financial Peace Planner is a great book to help you find financial peace and ultimately financial freedom. What I really like is he really puts things in perspective when he talks about balance between spiritual, physical, emotional and interlectual. I was impressed when he said the bible didn't say that money was evil but that the love of money was the root of all evil.
Financial Planning for college needs to start as early as possible because the earlier you start the easier it is to reach your college savings goal. This may be a good time to take a look at my Investment Lesson to get some ideas about things that you can do to start saving for college. It’s important that you take advantage of compound interest. See the savings plan lesson to learn about the effect of compound interest on your financial planning for college.
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