Personal Finance Basics

2006-08-12

Personal finance basics are the foundation to a successful future. But what is personal finance and what are the basics that affect everyone regardless of financial stature.

Personal Finance is defined as the management of individual or family financial resources to create enough wealth to achieve the basic needs, chosen lifestyle, and aspirational goals of the individual or family.

The objective of managing your finances is to reach your individual or family goals, create wealth and retire comfortably. When it comes to your finances, you are truly in charge. You are both your financial manager and beneficiary – meaning you have the power to mange how your funds are used and you reap both the pitfalls and rewards of how the funds are used. If you think of your position of Family Money Manager as a business manager would when running a business whose goal would be to maximize shareholder wealth. Your position is to manage your funds for your own benefit. No one is going to do it for you. Which means, ultimately it is your responsibility to take charge of your financial situation.

To prepare you for your new position of Family Money Manager, let’s take a crash course in personal finance and money management.

Money, income, and wealth are not the same. Personal finance isn’t just about money or how much you earn. It all comes down to how much you keep. Personal finance is all about wealth and the accumulation, preservation, and distribution of your wealth.

Personal finance is about behavior. Your behavior with your money determines how much wealth is accumulated. The right set of behaviors is required to use the many personal finance tools properly.

Personal finance is a full-time job. Personal finance requires continuous effort. You can just sit down once a month and pay your bills and expect to build wealth. You have to continually monitor expenses, assets, income, and liabilities in order to maximize your efforts.

These three factors are the foundation of solid personal finance principals. Hopefully you will see by now that it is more a mindset than anything else. You have to make the decision that you are going to take control of your personal financial situation by taking control of your decisions.

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