Finance & Investments

The key component of personal finance is financial planning, which is a dynamic process that requires regular monitoring and reevaluation. In general, it involves five steps:

1. Assessment: A person's financial situation is assessed by compiling simplified versions of financial statements including balance sheets and income statements. A personal balance sheet lists the values of personal assets (e.g., car, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit card debt, bank loan, mortgage). A personal income statement lists personal income and expenses.
2. Goal setting: Having multiple goals is common, including a mix of short- and long-term goals. For example, a long-term goal would be to "retire at age 65 with a personal net worth of $1,000,000," while a short-term goal would be to "save up for a new computer in the next month." Setting financial goals helps to direct financial planning. Goal setting is done with an objective to meet specific financial requirements.
3. Plan creation: The financial plan details how to accomplish the goals. It could include, for example, reducing unnecessary expenses, increasing the employment income, or investing in the stock market.
4. Execution: Execution of a financial plan often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, investment advisers, and lawyers.
5. Monitoring and reassessment: As time passes, the financial plan is monitored for possible adjustments or reassessments.

Areas of focus
The six key areas of personal financial planning are:
1. Financial position
2. Adequate protection
3. Tax planning
4. Investment and accumulation goals
5. Retirement planning
6. Estate planning

Yes, I know I’ve written about this before but it is always worth repeating. More on this topic in “Girls Just Want to Have Fund$,” “Money, Money, Money Ain’t it Funny” and “Smart Money” available now as ebooks.