Personal finance implies to the process of planning and managing money in order to achieve financial goals. As per Kavan Choksi / カヴァン・ チョクシ, personal finance encompasses of many aspects, including budgeting, saving, investing, paying off debt, and planning for retirement. People have to make numerous financial decisions every day. The better they are able to manage their finances, limit their debt and maintain a good credit score, the easier it shall be for them to accomplish their financial goals.
Kavan Choksi / カヴァン・ チョクシ talks about the key fundamentals of personal finance
Personal finance is an important part of one’s daily financial needs and long-term financial goals. The sooner one gets their grip on personal finance, the better their long-term financial prospects will be for things like planning for retirement, investing, and more. Here are the key fundamental components of personal finance:
- Income: Personal finance largely deals with managing the inflow and outflow of money. One can be a pensioner, a salaried individual or a businessperson. They can earn rental income, receive dividends from stocks, or profit from the sale of assets. All these sources of income have to be identified when trying to manage personal finances. Doing so will help create and manage a household budget. This step is fairly easy for a salaried person, as they have a fixed income. Self-employed individuals should forecast their earnings and add fixed incomes such as rent and pension, if applicable.
- Expenses: One must keep an eye on their spending to see to it that their personal finances are in order. To do so, one must monitor certain typical household expenses like utility, credit card bills, rent, loan EMIs, food, travel and conveyance, and more. Regular monitoring of expenses and sticking to the household budget would help people to control their finances more efficiently.
- Saving: Following a budget and minimizing expenses would allow people to save a portion of their income for future expenses or investments. The hallmark of smart financial planning is to earn, save and spend, instead of earn, spend and save. People should be ambitious with their savings target, and try to achieve it every month, and then spend the remaining income on essentials. Savings can be maintained in cash, short-term securities, savings bank accounts, and so on.
- Investing: As per Kavan Choksi / カヴァン・ チョクシ, the investments of a person help them to achieve certain big-ticket financial goals, like buying a house, retirement, funding a child’s higher education, and more. Investment involves the purchase of financial or physical assets that are likely to generate a return on their value.
While the four pillars of personal finance underlined above are widely recognized, there is an equally crucial fifth principle that must not be overlooked, which is protection against unforeseen circumstances. This aspect of financial planning is vital for ensuring long-term stability and resilience in the face of unexpected life events. It encompasses various forms of insurance, including life insurance, health insurance, and coverage for property and other valuable assets. These financial safeguards act as a buffer, and provide monetary support when individuals or families are faced with challenges such as illness, accidents, or loss of income.
