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 principles
When planning personal finances, the individual would consider the suitability to his or her needs of a range of banking products (checking, savings accounts, credit cards and consumer loans) or investment in private equity, (companies’ shares, bonds, mutual funds) and insurance (life insurance, health insurance, disability insurance) products or participation and monitoring of and- or employer-sponsored retirement plans, social security benefits, and income tax management.
Personal finance principles
Personal circumstances differ considerably, with respect to patterns of income, wealth, and consumption needs. Tax and finance laws also differ from country to country, and market conditions vary geographically and over time. This means that advice appropriate for one person might not be appropriate for another. A financial advisor can offer personalized advice in complicated situations and for high-wealth individuals, but University of Chicago professor Harold Pollack and personal finance writer Helaine Olen argue that in the United States good personal finance advice boils down to a few simple points:[5]
- Pay off your credit card balance every month, in full
- Save 20% of your income
- Create an emergency fund
- Maximize contributions to tax-advantaged funds such as a 401(k) retirement funds, individual retirement accounts, and 529 education savings plans
- When investing savings:
- Don’t attempt to trade individual securities
- Avoid high-fee and actively managed funds
- Look for low-cost, diversified mutual funds that balance risk vs. reward appropriately to your target retirement year
- If using a financial advisor, require them to commit to a fiduciary duty to act in your best interest
