Guide To Understanding Personal Finance


Earning money is hard, preserving and growing it is harder. Saving and investing are two crucial aspects of personal finance.While saving is primarily meant to meet emergencies, investments are planned and made to attain a goal.Guide To Understanding Personal Finance

So you can save money in a savings account to meet sudden medical or maintenance bills.

However, to support higher education of your children or creating reserve fund for retired life you need to invest in different financial instruments. Planning and allocating your financial resources effectively may not be very simple buy if you devote some time regularly then it is exciting and fulfilling job.

Start by assessing your income. This may be done on monthly or yearly basis. If you are salaried then monthly analysis is suitable. When your source of income is business then probably a yearly estimate would give correct figures. Take into account income from different sources. This may include dividends, bonuses, promotional benefits or tax refund.

Make an estimate of costs that are essential to maintain your family. Make provision for emergencies, various taxes and utility bills along with grocery bills and probable mortgage payment. Now you have a clear picture of where you stand and how much you can invest.

Set aside an amount to invest in retirement plans like IRA (Individual Retirement Account) or 401(k). This amount is determined by your age. If you start saving for retirement from early age then you may need to invest smaller amount. Those who are starting late should be prepared to save more in such funds.

Investing in stocks is perhaps most rewarding, especially if done with a long term investment strategy. Those who are young may consider investing more in stocks or mutual funds that invest in stocks. Risk exposure should be gradually decreased as you approach retirement. For seniors it is desirable to go for balanced funds, debt instruments or government bonds.

Make sure to review and modify your investment strategy periodically. Watch out for non performing funds or stocks in your portfolio. Prepare a list of stocks or mutual funds that you have found to be promising but not included in your portfolio. Track their performance and do not hesitate to use them as replacement to non performing instruments.

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