Across the globe, many people would rather opt for personal finance accounting. Personal finance involves all the aspects of financial management, wherein, the individual or a group of people process and plan personal financial activities such as income generation, spending, saving, investing, and security. The entire process of planning the financial activities becomes the budget or the financial plan.
A great deal of the information is required for planning personal finances and investing in decisions of accounting. The dynamics of personal accounting revolve around assessment, goal setting, plan creation, execution, and monitoring or reassessment.
Components of personal finance that requires proper accounting
Income
The source of all the inflow of cash that the individual receives and then uses to support themselves and their family. This generated income can be used by the individual to spend, save or invest. The sources of income include:
- Salaries
- Bonuses
- Hourly wages
- Pensions
- Dividends
Spending
This includes all the kinds of expenses an individual spends on commodities and services which do not come under-investment. All of these spending falls under the categories of: Cash or Credit, the major sources of expenditure include:
- Rent
- Mortgage Payments
- Taxes
- Food
- Entertainment
- Travel
- Credit Card Payments
This reduces the amount of income that the person has available and therefore, if the expenses grow greater than income, then the individual has a deficit. Managing these personal expenses is the most crucial part of personal finance accounting.
Saving
It refers to all excess cash that is stored for future use and is retained for future investing or spending. The surplus that remains after earning income and spending expenses accounts for investments or savings:
- Physical Cash
- Saving bank account
- Checking bank account
- Money marketing securities
Investment
Investing refers to the purchase assets that are expected to generate the rate of return over time to expect to receive returns more than what they originally invested. Investments usually carry risks as not all the returns accumulate profit. The common kinds of investment include:
- Stocks
- Bonds
- Mutual Funds
- Real Estate
- Private Companies
- Commodities
- Art
Investment in the area of personal finance that requires professional assistance and advice.
Security: Personal security refers to the protection that is given to a wide range of products that can be used to guard or protect against an unforeseeable circumstance or event. For ensuring the security of their savings or investments there is a whole series of analyses that need to be done to properly assess an individual’s insurance and estate planning needs. This is where most of the individual also require professional assistance as it is complicated:
- Life Insurance
- Health Insurance
- Estate Planning
However, there are several software that are used for mastering the basic concepts of personal finance accounting. This helps the individual become more efficient at accounting by managing the finance, savings, investment, budgeting, and expense tracking with the help of portfolio management. Some of this software are:
- Quicken
- Mint
- TurboTax
- FutureAdvisor
- Mvelopes
- Personal Capital
- Tiller Money
