Personal finances include budgeting, saving, and spending the pecuniary resources of an individual or a family, over time. You must consider the economic risks and the possibilities in the short, medium, and long term. It also takes into account banking products, investments (stock market, bonds, and others) and insurance (life, health, disability, and more).
The key here is planning. It is a highly dynamic process that requires frequent monitoring, adjustments, and evaluations. Their deadlines include setting goals, drawing up a detailed plan, and executing. And to succeed requires discipline and perseverance.
The areas towards which planning is oriented are:
- Financial position: knowing what resources are available is essential. For this analysis, equity, cash flow, personal balance, etc., must be considered; that is, all those elements related to the quantification of assets and liabilities, income, and expenses.
- Protection: point related to insurance policies. The risks that require appropriate coverage would be property, life, disability, health, etc. Good advice is essential.
- Tax planning: paying taxes is one of the aspects to pay close attention. It is also important to set aside an equitable amount from the total annual amount each month for this purpose and to know the tax deductions and credits that the laws allow applying in each case.
- Investing: When it comes to big events, like buying a house, a vehicle, starting a business, sending a child to college, or saving for retirement, it is convenient to have a generous fund to cover those needs. Remembering that the rate of return of the chosen instrument must exceed inflation.
- Retirement: How to distribute resources when the time comes, easily covering the income gap? Many companies sponsor a retirement plan for their employees with small monthly contributions, it is convenient to take advantage of it and look for an additional alternative.
- Inheritance taxes: the disposition of the assets must be taken into account after the physical disappearance. And do not forget that, if the heirs’ distribution is made in life, it is possible to avoid these taxes legally.
Advantages of getting financially smart
A good number of our economic problems are not caused by inflation, bad government policy, or any outside entity; rather, they come as a direct consequence of lacking a healthy attitude towards money and not having learned to use it properly. Because of this, we embark on a stressful struggle to own more things, without mastering the basic principle that it is impossible to spend what you don’t have.
If we spend uncontrollably and get into debt living on appearances, we will never achieve financial freedom; that is, getting money to work for us while we engage in engaging and enjoyable activities. The great millionaires of the world, at least those who make their fortunes by their own efforts, do not act that way.
Do you want to get out of debt? Have financial and time slack? Live calmly?
Develop your financial intelligence and its sisters, the emotional, and the interpersonal. The first step to achieving this is to read about it. There is a lot of literature on the Internet, autobiographies of successful entrepreneurs, and even audio books that will guide you in the process of better controlling your economy.
