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:


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!

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benefits of having private Finance software program

all of us nowadays lead a very demanding time table that leaves us with much less time to spend at the matters which we need to do. you may need to spend time together with your own family or organize your monetary payments. it is able to be very difficult to return lower back from a hectic day from work and sit down organizing your economic payments and transactions.this is a piece that you may have to do with lot of care and interest. after all you’re managing your cash. it’s far very vital to maintain song of your budget and investments. you might don’t forget hiring the offerings of an accountant or financer, but when that choice is not appropriate, you can pick out a less complicated choice of buying private finance software rather.The great manner to recognize the importance private finance software is to find out the advantages of having one. allow us to find out collectively what the advantages of owning private finance software.they’re as follows:Does the math for you: the first advantage of you owning personal finance software is that, it does the maths for you. you can find it very tedious to handle all of your budget your self and the worse part is doing the entire math your self. Even in case you are precise in math, their is usually a hazard to make mistakes.Having non-public finance software program permits you to make bills and calculate the purchases once you’ve got downloaded the software. So, irrespective whether you recognize in your math or now not, personal finance software program makes certain that your calculations are hundred percent correct.update your account transactions: if you are an investor or a person who does commercial enterprise, then you’ll discover this software very beneficial. because the software will calculate your transactions usually an afternoon, you may view your account without delay. Supposing you do not want to down load data on your transactions, then you can choose software thru which you could import transactions.From a commercial enterprise point of view, that is a completely beneficial element as you keep plenty on time. you can make use of your saved time on some thing else to increase your commercial enterprise.Scheduler feature: any other outstanding function of this software is the scheduler. you may schedule your deposits, payments, paychecks, fund transfers, and so on. thru the reminders you can get hold of the facts to your cell telephone or e-mail. For frequent vacationers, that is a totally useful characteristic as you may usually preserve in touch together with your schedules.effective finances plan: it’s miles very hard for all people to create an effective budget plan. however, non-public finance software program allows you create a non-public price range. Having a finances that fits your business enables you are making powerful selections. sure, you have your parents or friends to look to while creating a finances, however you might need to give the personal finance software program a try. you will certainly note the difference.So, in case you are searching out approach to simplify your economic matters, then the personal finance software program can help achieve it. don’t postpone in shopping your software program these days.

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