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Personal financial management is a term used to describe the strategies used to create and manage the accounting processes for individual or household finances. This process can be managed by individuals or can be outsourced to professionals who oversee every aspect of the financial planning, including receipt of income, paying bills, and allocating available funds to savings and other investments. Personal financial management techniques can vary from simplistic procedures that work well for managing basic household expenses to sophisticated methods that make it possible to effectively manage investment portfolios and a wide array of other assets.
One of the basic aspects of personal financial management is finding the balance between income and expenditures. Ideally, this involves making sure that the individual is living within his or her means, and over time is building a sound credit rating and creating a financial nest egg for the future. To this end, the development of a workable budget that allocates a reasonable amount of funds to each line item, including savings and investments, can help to prevent the accumulation of an unmanageable amount of debt.
Personal financial management is also concerned not just with managing income and expenditures that are part of the day to day process, but also planning for the future. The idea is to determine specific long-term goals, such as how to fund retirement, put aside money for college, or even to eventually buy a home. To this end, the personal financial management effort will look for creative ways to utilize the funds left over after the basic living needs of food, clothing, and shelter have been met, and other important issues such as maintaining a working vehicle have been addressed. When properly managed, this surplus can grow incrementally over time, eventually making it possible to reach those goals.
There are a number of personal financial management tools available today. In addition to courses and online resources that can help teach basic financial accountability and budgeting techniques, there are also software programs that can help track expenditures so that households can identify where the money goes each month. Some of these software programs are open source and available at no charge. Creating a logical plan for spending and committing to it helps to provide peace of mind in the here and now, while also making it possible to create resources that will serve the individual and household well in the years to come.