There are six key areas of personal finance. These include financial position, adequate protection, tax planning, investment and accumulation goals, retirement planning and estate planning.
Personal financial position is the understanding of household cash flow and net worth. By analyzing these two areas, a personal financial planner can help determine if personal financial goals can be achieved and how long it might take.
Adequate protection is protecting household and personal finances from risks. These risks can include liability, disability, health, long term care and death. Some of these risks may require insurance and some may be risks that can be handled through personal financial planning.
Tax planning is managing finances for one of the biggest consistent expenses in a household, income tax. Taking advantage of tax breaks and incentives may aid in planning and saving personal finances.
Investment goals can help one plan to accumulate enough money to plan for personal finances and large financial purchases. Personal finance planning is also important to accommodate big purchases, such as the purchase of a car of house. It is also important to plan for events which will have a significant effect on personal finances, such as the birth of a child or college tuition.
The retirement planning aspect of personal finance can encompass many different plans or sources of revenue. These may include social security benefits, 401K, IRAs, pensions and investments in stocks or bonds.
Estate planning is planning for your personal finances when you die. With the correct planning, you may be able to avoid some costly taxes for your heirs.