Personal Finance as the name describes it is the management of personal financial needs. Financial management relating to an individual or a family falls under the preview of personal finance. There are two sources of acquiring finance in the real world i.e. internal resources and external resources.
What personal finance is?
In the context of financial requirements relating to a person or family in South Africa, it can be managed internally from the earnings and accumulated savings. External resources include the loan products available in different types of personal loans, credit cards and insurance claims etc.
Personal finance involves all the decision relating to the unforeseen expenses and safety reserve funds to meet the emergency situations. Personal finance also involves the investment decisions for future planning to encounter the expected future expenses e.g. future requirements of a separate house, personal car and university educational expenses of children etc.
Budget preparing is the routine task of almost every individual and family for analyzing the routine expenses and ascertaining the possible savings or loan requirements. The requirement of personal finance management is essential especially for the unpredicted or surprising expenses as compared to the routine or predictable expenses. Unpredicted expenses usually have the characteristics that require quick response to encounter the situation.
In other words, surprising expenses are emergent in nature and the cannot be postponed e.g. medical expenses, expenses relating to saving opportunity loss, vehicle repair expenses during the journey etc. these are all emergency expenses and require instant response. To meet this type of expenses the good practices of personal finance suggest the creation of emergency fund either by accumulating the savings or by having the facility of loans like ready line financing etc.
Planning your Personal finance
Planning is the most important aspect of the personal finance. Personal finance planning involves the estimation of short term and long term personal essential requirements and devising a plan for pursuing these goals by keeping in view the financial constraints.
For the South Africa families, the best way to start this activity is to create a personal budget relating to the current income and expenses further keeping in mind the future aspirations.
The framework of the budgeting assists in developing the strategy for pursuing the future needs and keeping in mind the pattern of income, expenses, and savings. With the help of budgeting tool, one can bifurcate the earning to meet present household needs and for save the money for future expected expenses. Bank and insurance companies in South Africa are also playing a very important role in personal finance and deemed to be a segment of this personal finance by offering saving accounts and Profit & Loss sharing accounts.
Introduction of the saving account in the banking sector helps in promoting the saving trends among the individuals. It is wise to put the spare funds in a saving account rather than to put them in a personal locker at home because the deposited funds earned interest and thus increase the net worth of the individuals. On other hand, insurance companies offered different dedicated insurance policies to meet the foreseeable future needs of the personal finance relating to an individual or family.
For example, educational insurance plan is devised to meet the upcoming expected expenses relating to the Children University or high school fees. Educational plan holder needs to deposit a fixed amount of saving at regular intervals and on the maturity date, the policyholder gets the money for which it was accumulated. All these financial tactics or schemes give a boost to the savings of the policyholder and part of the personal financial planning.
Personal financial management
In Personal financial management, the consideration of the creditworthiness of the individual or family matters a lot. That means how the financial institution or other money lenders consider a particular person in the sphere of money lending. How much can an individual avail the credit facility from the financial institutions in South Africa? Another way to achieve the desire or satisfy the emergent need is to take a loan from the money lenders but it depends upon the credit score and credit history of the person.
There are so many products of loans like credit cards, personal financing facility, ready line cash facility, payday loans, car financing and house building advance facility offered by different money lenders but all you need to choose wisely based on your priority and terms of the loan that best suits to your requirements. Some types of loans do not consider the credit score or rating of the individual but charge high-interest rates just like payday loans.
The only thing is to realize at this point to analyze the requirements whether it is necessary to enter these types of loan agreements by keeping in view the necessity of the situation and avoiding from the situation of debt lock. To avoid the debt lock situation, sensible use of the credit facility is very necessary. For example, wise use of credit card facility allows an individual to use the money of the lender from 45 to 50 days without paying a single penny of interest if the full payment made by the user on the due date. It can be done in this way, suppose your credit card bill generated on 15th date of each month and the due date of credit card bill payment is 5th of next month. If you made credit card transaction on the 16th date its bill will be generated on the 15th date of the next month and the due date would be the 5th of the 2nd month of the buying. On the due date if full payment of the transaction paid by the person to the bank, no interest would be charged on this transaction. In this way, one can use the money of the bank without paying any interest on the loan amount.
Personal financial planning is a very important thing that makes our life better. It’s not wrong if we say that the intelligent personal finance management is the essence of the better life management. All you need to pencil in the list of do’s and don’ts of short term and long term ambitions or expenses with the time frame of getting those things by keeping in view the financial constraints. Next step is to devise a budget plan to achieve them, calculate your net worth which tells you where you are standing up right now and make an assessment of your savings along with creditworthiness.