The Key to Personal Finance

Additional effort in managing one’s personal finances will result to a more positive usage of personal resources. With attainable, realistic goals, ones financial standing will progress in no time at all. However, for the part of the individual concerned, this calls for proper planning and monitoring. There is also a need to assess at some point to see if the goals set are being met or further intervention is needed to alleviate the financial condition.

Available Income:

Regular household cash flow
After Budget cash or net flow

Regular household cash flow is what remains after the expected yearly expenses are subtracted from the expected yearly regular income. After budget cash or net flow is simply what one ends up with after subtracting regular household liabilities from the known assets. The part of the regular income that does not go towards normal expenses is a very important resource that can be diverted towards other personal financial goals. A balance sheet should be able to determine the net worth before proceeding to plan further on how to save enough for bigger and more important purchases.

Factors to be considered if 50% net increase is desired:

Full liabilities
Outstanding debts
Investment Instruments
Savings yield- savings + interest gained
Outstanding student loans

It only goes to say that when liabilities decrease, a person’s net worth increases along with it. The number one advice for people with plans to progress financially is to avoid taking juicy bank loans on offer as they are ever-potent dangers to one’s credit score specially when the interest pile up. Recovery from debts will be a much needed boost to personal finance. The more payables are settled, the fewer the liabilities are and this carries a positive reflection on one’s balance sheet and also his credit standing.

Personal investments make up most of a person’s net worth and thus it is a perpetually good move to gain as much valuable assets as a person possibly can in the course of his lifetime. This is not to say that forethought should not be employed here but the contrary. Investing by buying up profitable assets should always be preceded by careful analysis, so that a purchase will actually add vigor to one’s portfolio. The general trend is that if you are the risk avoidant type of investor high risk investments are avoided. These are properties which have value that changes with the ebb and flow of time like real estate, precious metals like gold and other physical goods that are known to have volatile values.

The riskier among us, those whose mettle are undeniably more resistant to fear easily trade in stocks and other financial instruments of our time. In this type of assets, the rule goes that the higher the risk, the higher the possible gains. This kind of investments no doubt needs to be studied and studied again due to the very nature of it to avoid excessive losses and to catch gains when and where they are likely to fall.

As savings is an important and integral part of a person’s net worth, due research is called for to yield the names of institutions that offer better products or simply better rates for one’s hard earned dollars. For example, American soldiers have the option and the privilege to take advantage of the DOD Savings Deposit program that has very high interest rates at 10%.

Savings accounts and CDs serve you in two ways: firstly by increasing your total net worth and secondly by giving a much needed buffer zone to your personal finance portfolio, as seen by prevailing trends all over. The reason for this is because such instruments are federally insured and grows at a steady, favorable rate every year.

One thing that has perennially damaged net worth are student loans as they can persist a long time after a person has graduated and worked. To counter the negative impact of this, one effective practice is to take advantage of seasonal tax breaks. With American opportunity tax credit alone, an individual can save as much as $2,500 and those who are still studying should altogether shun away from private student loans in favor of federally funded loans as these carry a lower, or fixed rates in general.

Most effective ways to maximize cash flow:

Highly informed financial decisions
Making and adhering to a budget
Controlling impulsive buying
Putting Cost cutting measures in place

Smart financial choices can sometimes spell the difference between ruin and progress. For instance, there is a choice between buying a house which becomes unaffordable later on as opposed to renting a modest accommodation. If the sale price of the house is proven to be a figure greater than 20, when the actual sale price is divided by the yearly rental, then you would be wiser if you rent. Managing personal finance need not be a daunting task; it only requires patience and practice.

Where you can cut costs:

Cut back on unnecessary expenditure
Cooking instead of dining out
Look into car insurance cost cutters
Collecting and using coupons
Buying wholesale instead of retail wherever applicable

There is absolutely no shame in using coupons and the benefits are tremendous, it can even get to be a habit. Why pay the full price when a little vigilance in cutting and saving coupons goes a long way? If no printed material is available from where to glean coupons, the internet is always there, the perfect place to search for printable coupons.

Cook at home and cook in batches. Then freeze for later meals. Have the due diligence to look after leftovers and you will probably save a fortune in take-out budget. There is no shame in keeping eatable food and it does wonders to a family or individual’s food budget.

Cut down on company offers, like phone packages, cable or internet packages, whatever has hidden charges, zero in on them and ask to get only the basic service, pay only for what you actually need and use. The extra features cost and pile up in the long run.

Carpooling is also one way to save, and if you must absolutely drive, drive safely to avoid charges. These small things all contribute towards managing one’s finance in a sane and productive way. And the habits that are changed also stick, so it is best to make sure that you make changes for the better.

How to estimate: Tools in Determining Worth

Simple Net worth calculator
Retirement calculator- many are downloadable
Mortgage rate calculator, again downloadable
Spouse or partner income calculator for multiple income households
Loan calculator, for free from many sites
Currency converter- already in wide use everywhere
Home budget calculator- a standard for many housewives
FICO score range tool- again available for free online
Student loan calculator- for up to date interest rates

These personal finance calculators are absolutely necessary when strategizing and setting up your long and short term goals, tax payments and schedules, mortgage resolutions and other financial steps. The closer the estimates are to real figures, the closer you will be to realizing your plans and these depend heavily on calculators.

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