Personal finance fundamentals and practical applications

Personal Finance

The issue of personal finance is important to everyone. Although the importance of personal finance has long been noted, many fear that most educational institutions have failed to address this issue (Lewis). According to an article found in the Washington Times "High school seniors flunk personal finance 101...Many students answering an 801-person telephone survey sponsored by the Americans for Consumer Education and Competition answered incorrectly on questions about saving, investing and taxes

One-third of the students surveyed had a savings account. But 38% thought savings accounts were a better way to earn interest than money market accounts or certificates of deposit. Susan Molinari, a former member of Congress and Americans for Consumer Education and Competition's chairman, said the results show a clear need for better personal finance education, both at home and in schools (Hyman 2001)."

Personal finance concerns itself with the "application of the principles of financial economics to an individual's (or a family's) financial decisions (personal finance)." Personal finance evaluates issues such as annual income, expenses, debt, assets, retirement and investment (personal finance). Just as with other forms of finance, the time value of money plays an important role in determining what type of investments to make in the future (personal finance).

Another important part of personal finance is the financial planning process. This process involves five main steps. The first step is the evaluation of your current financial situation (personal finance). This means that the individual needs to compile financial statement that are similar to those created by corporations and other businesses (personal finance). This includes a balance sheet which lists assets and liabilities (personal finance). The individual will also create a cash flow statement during this step which will present the individual with their net cash flow (personal finance).

The next step is to set goals for the future. This would include things such as the age you want to be when you retire and how much money you will need to live on when you retire (personal finance). It may also include goals concerning the attainment of education for the individual or their children. During this time the individual should establish both short-term and long-term goals (personal finance).