The Best Way to Understand Personal Finance

When we are trying to understand Personal Finance, the best thing to do is to understand what Personal Finance is NOT.

Many people think that accounting and personal finance are the same, but Personal Finance is NOT Accounting.

On the surface they may seem the same; they both have something to do with money. However, the definitions will help us better understand the differences.

Merriam-Webster’s definition of accounting is “the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results.”

Based on this definition, we see that accounting is the process of analysing and recording what you have already done with your money.

This is why having an accountant is usually not enough when it comes to your personal finances.

Accountants generally don’t concern themselves with personal finance (there are some exceptions to this rule). Unless your accountant is also a financial advisor or coach, he or she will likely just look at what you have done with your money at the end of the year and provide you with a report of their analysis.

This report is usually your tax return; what you owe the government or what the government owes you.

Very rarely does the accountant provide an individual with a Balance Sheet or Income Statement or a Net worth statement; all very helpful tools that are necessary to effectively manage your personal finances.

Personal Finance is looking at your finances from a more pro-active and goal oriented perspective. This is what provides the accountants with something to record, verify and analyze.

The Merriam-Webster’s (Concise Encyclopedia) definition of “Finance” is the “process of raising funds or capital for any kind of expenditure. Consumers, business firms, and governments often do not have the funds they need to make purchases or conduct their operations, while savers and investors have funds that could earn interest or dividends if put to productive use. Finance is the process of channeling funds from savers to users in the form of credit, loans, or invested capital through agencies including COMMERCIAL BANKS, SAVINGS AND LOAN ASSOCIATIONS, and such nonbank organizations as CREDIT UNIONS and investment companies. Finance can be divided into three broad areas: BUSINESS FINANCE, PERSONAL FINANCE, and public finance. All three involve generating budgets and managing funds for the optimum results”.

Personal Finance Simplified

By understanding the definition of “finance” we can break our “personal finance” down into 3 simple activities:-

1. The process of raising funds or capital for any kind of expenditure = Generating an Income.
A Business gets money through the sale of their products and services. This is labeled “revenue” or “income”. Some businesses will also invest a portion of their revenue to generate more income (interest income).

A Person gets money through a job, or a small business (self employment, sole proprietorship, network marketing or other small business venture). The money coming in can be a salary, hourly wage, or commission, and is also referred to as income.

A Government gets money through taxes that we pay. This is one of the main ways that the government generates an income that is then used to build infrastructure like roads, bridges, schools, hospitals etc for our cities.

2. Using our money to make purchases = Spending Money.
How much we spend relative to how much we make is what makes the difference between having optimum results in our personal finances. Making good spending decisions is critical to achieving financial wealth – regardless of how much you make.

3. Getting optimum results = Keeping as much of our money as possible
It’s not how much you MAKE that matters – its how much you KEEP that really matters when it comes to your personal finances.

This is the part of personal finance that virtually everyone finds the most challenging.

Often people who make large incomes (six figures or more) also tend to spend just as much (or more) which means they put themselves in debt and that debt starts to accrue interest. Before long that debt can start to grow exponentially and can destroy any hope they would have had to achieving wealth.

Personal Finance made simple

Personal Finance doesn’t need to be complicated if you keep this simple formula in mind:

INCOME – SPENDING = WHAT YOU KEEP

For Optimal Results you simply have to make more than what you spend and spend less than what you make so you can keep more for you and your family!

If you are not actively working towards an optimal result you will by default get less than optimal results

It really is that simple!

Now that you understand personal finance and WHAT you need to do, the next step is learning HOW to do this!

The best way to start is by following these 3 simple steps:-

1. Know what you want to achieve – “if you don’t know where you are going, any road will take you there” has become a very popular quote, probably because it is so true. One of the habits that Stephen Covey highlights in his book “7 Habits of Highly Successful People”, is to always start with the end in mind. Knowing where you want to go will be a big help in ensuring you get there.

2. Have a plan – that you can follow that will get you to your goals. Knowing how you will achieve your goals in a step by step plan is invaluable. Sometimes this is easier with the help of an advisor or a financial coach.

3. Use tools and resources – that will help you to stick to your plan and not become distracted by the things in life that could limit our incomes and make us spend more than we should. Don’t try and work it all out in your head! You will end up with a massive headache and your finances will become one gigantic dark fog!

If you are serious about getting your personal finances on track I would encourage you to take advantage of our free “We Are Talking Dollars 7 Day Money Makeover” at [http://wearetalkingdollars.com/free-report]. It will take you through SEVEN simple action steps that will get you started on optimizing YOUR personal finances!

Getting the Best From Personal Finance

It is every persons dream to become rich. However, no matter how hard most people try, the results are always unreliable. Saving is not easy especially when considering the hard economic times. All in all, the available finances can be salvaged and augmented. In the market today, there are many service providers who are willing to offer the best information to better the finance of an individual. It is important to understand that not all the service providers can be relied on since some of the information given is exaggerated. The consideration of the following suggestions can help in better finance management.

The first thing that one should do is to yearn to learn more. There are many options in the market today that people can turn to in bettering their finance. The problem however is that not all the available options can be relied on. This is what calls for the need to learn more. One should make the effort of learning what other people are doing to manage and augment their finances. Mistakes in finance will always be there but we can’t all live long enough to make them and learn from them. The only way through is to learn from the mistakes of others when it comes to finance and get a way round the problem.

The second method that one can use to get the best from the finance is to invest. Keeping the money in a dormant bank account does not benefit anybody. In fact, the value of the money might go down leading to frustrations in the future. It is always a good idea to invest the available money in any reliable option. This could be in the purchase of shares, stock exchange or simply by starting small business. The best thing that one can do to the available finance is to see to it that it increases and the only reliable method to achieve this is by investing.

Reducing the expenses is also another method that an individual can use to manage the finance and get the best from them. The main problem that faces most people in the world today is overspending. People tend to purchase any item that comes in their way so long as they have the money. This is not a great way in finance management. A budget should be set to monitor the monthly expenses. The reduction of the number of credit cards that an individual has could also help in better money management. Reduced spending is the key to getting the best from the finances.

Finally, it is important to never rely on personal understanding when it comes to the finance management. There are various methods in the market today that people are using to better their savings and avoid debt. Through consultation, one is able to understand the tactics being used by other people in the market to better their finances. Professional consultation is the best method that one can use especially when faced by a quagmire. Never hesitate to seek help if unsure of the next step to take.