Personal finance is the financial management which an individual or a family unit performs to budget, save, and spend monetary resources over time, taking into account various financial risks and future life events. Personal finance management holds importance in an individual’s life as it provides a path to the person as how to invest and save money for the future. It also aids in financial management for the present. When planning personal finances individual would consider his or her needs of a range of banking products as follow:
A transaction account or demand deposit account is a deposit account held at a bank or other financial institution which is available to the account owner “on demand” and is available for frequent and immediate access by the account owner. This can be a relevant account needed to fulfil an emergency requirement. Mostly people go for this option of opening up a checking account.
Saving accounts are accounts maintained by retail financial institutions that pay interest but cannot be used directly as money in the narrow sense of a medium of exchange (for example, by writing a cheque). These accounts let customers set aside a portion of their liquid assets while earning a monetary return. Savings account can really help you to accumulate wealth which can be used in the long-run.
A credit card is a payment card issued to users (cardholders) as a method of payment. It allows the cardholder to pay for goods and services based on the holder’s promise to pay for them. The issuer of the card (usually a bank) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance.
In finance, a loan is a debt provided by an entity (organization or individual) to another entity at an interest rate, and evidenced by a note which specifies, among other things, the principal amount, interest rate, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower. Consumer loans are secured by borrowers when they want to buy something they couldn’t afford. In such cases consumer loans are the best option available for the borrowers. Consumer loans have different types it is important to evaluate a type of a loan before entering into an agreement. If you don’t look for the different options, you might not get the best deal.
One thing to consider with personal finance and net worth goals is depreciating assets. A depreciating asset is an asset that loses value over time or with use. A few examples would be the vehicle that a person owns, boats, and capitalized expenses. They add value to a person’s life but unlike assets they do not make money and should be a class of their own. In the business world, for tax and bookkeeping purposes, these are depreciated over time due to the fact that their useful life runs out. This is known as accumulated depreciation and the asset will eventually need to be replaced. This is why it is important to calculate the depreciated value of the asset with time because as the time passes away, an asset loses its value accordingly.
These are some of the personal financial management tactics that can be really helpful for you in a difficult situation. However, it is better to be informed about all the latest promotions related to loan options so that if there is a need to take a loan, you go for the best option. If you can save money annually or monthly, that’s the best strategy as at the end of the day you would have enough money to fulfil your needs and you may not enter into a debt cycle.