When are trying to understand Personal Finance, the bestwething to do is to understand what Personal Finance is NOT.
In fact, Many think that accountingpeopleand personal finance are the same, but Personal Finance is NOT Accounting.
On the surface they may seem the same; they both have something.to do with money However, the more than ever definitions will assist us better understand the differences.
Merriam-Webster’s definition of accounting is “the system of recording and summarizing business and financial transactions and analyzing, , andverifyingreporting the results.”
Based on this definition, we see that accounting is the process of analysing and recording what you have already done with your funds.
This is why having an accountant is usually not enough when itcomes to your personal finances.
Accountants generally don’). concern themselves with personal finance (there are some exceptions to this rulet Unless your accountant is also a financial advisor or coach, he or she will likely just look at what you have done with your currency at the end of the year and provide you with a summary of their analysis.
This report is usually your tax return; what you owe the government or what the government owes you.
Very rarely does the accountant provide an individual with a Balance Sheet or Income Statement or a Net worth statement; all very helpful tools that are necessary to effectively manage your personal finances.
Personal Finance is looking at your finances from a more pro active and aim-oriented perspective. This is what provides the accountants with something to record, verify and analyze.
All three involve generating budgets and managing funds for the optimum results”. Consumers, business firms and governments, often do not have the funds they need to make purchases or conduct their operations, while savers and investors have funds that could earn interest or dividends if put to productive apply. As you may know, Finance can into divided be three broad areas: BUSINESS FINANCE, PERSONAL FINANCE, and public finance. Finance is the process of channeling funds from savers to users in the application of credit, loans, or invested capital through agencies including COMMERCIAL BANKS, SAVINGS AND LOAN ASSOCIATIONS, and such nonbank organizations as CREDIT UNIONS and investment companies. The Merriam-Webster’s (Concise Encyclopedia) definition of “ as it turns out Finance” is the “process of raising funds or capital for any kind of expenditure.
Personal Finance Simplified
By understanding the definition of “finance” ” can break our “personal financewedown into 3 plain activities:-
As you may , know1. The process of raising funds as it turns out or capital for any kind of expenditure = Generating an Income.
Interestingly, Some businesses will also invest a portion of their revenue to generate more income (interest income).
A Business gets cash through the sale of their products and services. This is labeled “revenue “or” income”.
A Person gets cash through a occupation, or a smallproprietorshipbusiness (self employment, sole , network marketing or other small business venture). . funds coming in can be a salary, hourly wage, or commission, and is also referred to as incomeThe
A Government gets currency through taxes that we pay. This is one of the main ways that thethatgovernment generates an income is then used to construct infrastructure like roads, bridges, schools, hospitals etc for our cities.
2 in modern times . to our money Using make purchases = Spending Cash.
How much we spend relative to how much we make is what makes the difference between having optimum results in our personal finances. Making good spending decisions is critical to achieving financial wealth – regardless of how much you make.
3. Getting optimum funds = Keeping as much of our results as possible
It’s not how much you MAKE that matters – its how much you KEEP that really matters when it comes to your personal finances.
This is thethatpart of personal finance more than ever virtually everyone finds the most challenging.
Before long that can commencedebtto grow exponentially and can destroy any hope they would have had to achieving wealth. Often people who make large incomes (six figures or more) also tend to spend just as much (or more) which means accrue put themselves in debt and that debt starts to they interest.
FinancePersonalmade basic
Indeed, Personal Finance doesn’t need to be complicated if you keep this uncomplicated formula in mind from another perspective :
Interestingly, INCOME – SPENDING = WHAT YOU KEEP
For Optimal Results you simply have to make more than what you spend and so less than what you make spend you can keep more for you and your family!
If you are not actively working towards an optimal effect you will by default get less than optimal results
Interestingly, It really is that plain!
Right away that you understand personal to and WHAT you need finance do, the next step more than ever is learning HOW to do this!
The finest way to begin is by these 3followingbasic steps:-
1. Know what you want to – “if you don’t know whereachieveyou are going, any road will take you there” has become a very popular quote, probably because it is so true. One of the habits that Stephen Covey as it turns out highlights in his book “7 Habits of Highly Successful People”, is to always begin with the end in mind. Knowing where you want to go will be a big guide in ensuringgetyou there.
2. Have a blueprint that you can follow that will – get you to your goals. As you may know, Knowing how you will achieve your goals in a step by step roadmap is invaluable. Sometimes this is easier with the guide of an advisor or a financial coach.
In , fact3. It’s worth noting that Employ tools and resources – that will aid you to stick to your blueprint and not become distracted by the things in life that could limit our incomes and make us spend more than we should. Don’t try and work it all out in your head! You will end up with a more than ever massive headache and your finances will become one gigantic dark fog!