Notes on Personal Finance 101 – #1Posted by Cap on October 13, 2005 |
I’ve mentioned before that I’m taking a personal finance class as an elective to learn more on the subject. Unfortunately I don’t think I’m getting much out of the class. The class doesn’t really have a lot of depth, and none of the test requires much reading or studying at all. Basically I’m not being forced to learn more. So to get more out of the class, I’ve decided to type up as much notes of the chapters as I can, and share ‘em here.
Personal Finance 101
#1 Personal finance planning and your life situation.
So what is personal finance planning? It’s the entire process of managing your money to achieve personal economic satisfaction. It could be planning your budget so you can buy Cap N’ Crunch cereal everyday for the rest of your life, or so you’ll have enough money to buy that silly house. Whatever that is more important in your life.
That’s the key thing here to realize, financial planning revolves around your life situation. For example, the priority of a weird 22 year-old college kid who has a stupid blog – can be very different than that of a married couple in their 30s. (Sugar filled cereal versus home ownership).
So what are the advantages of personal financial planning? Here’s some of ‘em listed from my textbook, Focus on Personal Finance:
- Increased effectiveness in obtaining, using, and protecting your financial resources throughout your life.
- Increased control of your financial affairs by avoiding excessive debt, bankruptcy, and dependence on others.
- Improved personal relationships resulting from well-planned and effectively communicated financial decisions.
- A sense of freedom from financial worries obtained by looking to the future, anticipating expenses, and achieving personal economic goals.
As I’ve mentioned, different life situation results in different financial planning. Some factors that affect daily financial decisions are age, household size, marital status, and your income level. Another important factor is your personal belief and your lifestyle, which heavily influences your spending and saving habit.
My textbook refers to these life situations as the adult life cycle, which is shown with the picture below (click to enlarge).
A somewhat subjective part in all of this is your value. Value in this case is defined as ideas and principles that a person considers to be correct, desirable, and important. Your personal value has a direct influence over the financial decisions you make. So having a clear grasp of that is also important.
So what’s coming up next? Let’s take a look at how the economy affects our financial planning, and then get into the necessary steps involved in the actual planning process. Stay tune!
Amendment: pfadvice pointed out something that should be noted. In the picture above, one of the “suggestions” the book have for young and single (18 to 35) to consider home purchase for tax benefit. I’m sure this applies to some people, but I doubt it applies to most people. As pfadvice has mentioned, that’s not really a common reason why people purchase a house.
I looked through the list again and everything else looks peachy, though you can always add more activities within each of those categories. Let me know if you spot anything else!
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