What is Personal Finance:
Personal finance is a term used to describe the financial situation of how a family or an individual manages their money by budgeting, spending, saving, and investing.
Financial planning is a very important element of personal finance. It involves five steps:
Monitoring and reassessment
Financial Planning for Goals:
Say, you assessed how much you earn and how much are your expenses. Now the next step is to determine how much to save and for what. This is called goal setting.
You can often get confused while setting goals for saving money. Now you might think, “I need some money for my yearly holiday vacation in a few months, so I guess I should save for that first. But I haven’t even become paid off my loan yet. The money which I started saving last year got used in furnishing the house. So, I need to save for that too.” Having many goals can be difficult in managing, so you must classify your goals into short term and long-term goals.
Prioritizing Your Goals:
How do you decide what to do first? How do you adjust your goals? This is called prioritizing.
Prioritizing means that you decide what is most important to you right now. All of your goals are important, but it's impossible to work on all of them at once.
1. Choose what is most important right now.
2. Focus mainly on that goal.
3. Add additional goals as you become comfortable with your efforts.
4. Being flexible is important. Change your focus on goals as your life changes.
What are Short-Term Goals:
The goals that are to be achieved within a period from one year to three years are short term. These are also known as “immediate expenses.” These can be easily achieved if done properly and may not require much commitment. Most people use short-term goals to eliminate credit card debt or establish an emergency fund. It can also include tasks like saving for your next holiday, paying the quarterly rent, or saving for your wedding.
What are Long-Term Goals:
The goals that are to be achieved in seven years or more are long term. These can also be called “big picture costs.” These goals require steady saving and commitment for a long time. They also require an investment plan. These can include saving for retirement, buying a house, and/or becoming debt free.
What are Mid-Term Goals:
There can be some overlap between short-term goals and long-term goals, known as mid term goals.
Although saving money can be hard, it is possible to reach your goals if you properly set them properly, commit to, and implement your saving plan.
Written by Rishita Arora