What Does Finance Mean? Its History, Types, and Importance Explained

 

What Is Finance?

Any topic pertaining to the creation, management, and study of money and investments is referred to as finance. In order to finance current projects using future income flows, it entails the use of credit and debt, securities, and investment. Finance is closely related to time value of money, interest rates, and other related topics because of this temporal aspect.

Finance can be broadly divided into three categories :

• Public finance
• Corporate finance
• Personal finance

Numerous other specialized areas exist as well. One such area is behavioral finance, which looks for the cognitive (e.g., emotional, social, and psychological) factors that influence financial decisions.

KEY TAKEAWAYS

• Finance is a term broadly describing the study and system of money, investments, and other financial instruments.
• Finance can be divided broadly into three distinct categories: public finance, corporate finance, and personal finance.
• More recent subcategories of finance include social finance and behavioral finance.
• The history of finance and financial activities dates back to the dawn of civilization
• While it has roots in scientific fields, such as statistics, economics, and mathematics, finance also includes non-scientific elements that liken it to an art.

Understanding Finance

The term "finance" is commonly classified into three main categories: personal finance, corporate finance, and public finance.Taxation schemes, government spending, budgetary processes, stabilization tools and policies, debt problems, and other matters of governance are all included in public finance. Managing a company's debt, income, assets, and liabilities is the focus of corporate finance. A person's or household's entire financial life, including savings, retirement planning, insurance, budgeting, and mortgage planning, is referred to as personal finance.

Key Finance Terms

These are some essential terms in finance that you should know.

An asset is anything that has value, like money, property, or real estate. Both current and fixed assets are possible for a business.

Liability: A financial obligation, like debt, is a liability. A liability may be long-term or short-term.

A balance sheet is a record that lists the assets and liabilities of a business. To find the net worth of the company, deduct the liabilities from the assets.

Cash flow: Cash flow is the movement of money into and out of a business or household.

Compound interest is calculated and added to the principal on a periodic basis, as opposed to simple interest, which is added to the principal only once. As a result, interest is assessed on both the principal and the interest that has already accumulated.

Ownership is referred to as equity. Because each share represents a portion of ownership, stocks are referred to as equities.

Liquidity is the ease with which an asset can be changed into cash. For instance, because it can take weeks or months to sell, real estate is not a particularly liquid investment.

Profit: The money that remains after expenses is known as profit. The amount that a company has made or lost over a specific time period is displayed on a profit and loss statement.

History of Finance

The study of finance emerged as a separate discipline from economics in the 1940s and 1950s, thanks to the contributions of authors such as Myron Scholes, William F. Sharpe, Fischer Black, and Harry Markowitz.Certain areas of finance have existed in one form or another since the beginning of civilization, including banking, lending, investing, and of course money itself.

The Babylonian Code of Hammurabi (c. 1800 BCE) codified the financial practices of the ancient Sumerians. This set of regulations controlled credit, hiring agricultural labor, and land ownership or rental.

Indeed, there were loans in those days, and interest rates differed based on whether you were borrowing silver or grain.

Cowrie shells were used as currency in China by 1200 BCE. Around the first millennium BCE, minted money was first used. Around 564 BCE, King Croesus of Lydia (now Turkey) was among the first to mint and distribute gold coins, hence the phrase "rich as Croesus."


Since priests and other temple employees were thought to be the most upright, pious, and secure people to protect property, coins were kept in temple basements throughout ancient Rome. Temples served as the financial hubs of large cities by lending money as well.

Early Stocks, Bonds, and Options

Belgium asserts that it was home to the first exchange, citing a 1531 transaction in Antwerp as evidence.

Due to its stock issuance and dividend payments from voyage earnings, the East India Company became the first publicly traded company in the sixteenth century.

Less than 20 years after the founding of the London Stock Exchange in 1773, the New York Stock Exchange was established.

The first known bond was written on a stone tablet in 2400 BCE, which listed debt commitments that ensured grain repayment.
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Governments started issuing debt in the Middle Ages to finance their war endeavors. The Bank of England was established in the seventeenth century to finance the British Navy.

To aid in the Revolutionary War, the US also started to issue Treasury bonds.

History.com. "Congress Founds U.S. Treasury."


Contracts for options have existed since the time of the Bible. In Genesis 29, Laban gives Jacob the choice to wed his daughter in return for working for him for seven years. But because Laban broke the deal after Jacob's work was done, this example shows how difficult it is to uphold commitments.

The philosopher Thales provides an account of the early use of options in his work Politics, written by Aristotle in the fourth century. Convinced that there would be an abundant crop of olives in the upcoming year, Thales bought outright the rights to every olive press in Miletus and Chios.

In terms of options on an exchange, by the middle of the 17th century, Amsterdam's advanced clearing system included both forward and options contracts.

Advances in Accounting

Ancient civilizations were familiar with compound interest, which is interest that is calculated on both principal and interest that has already accrued. The Babylonians had a term for this type of interest that essentially describes the idea. However, mathematicians did not begin to analyze it to demonstrate how invested sums could accumulate until the Middle Ages: The mathematical manuscript known as Liber Abaci, penned in 1202 by Leonardo Fibonacci of Pisa, is among the oldest and most significant sources. It provides examples of compound and simple interest comparisons.

Luca Pacioli's Summa de arithmetica, geometria, proportioni et proportionalita, the first thorough treatment of accounting and bookkeeping, was released in Venice in 1494.

In 1612, William Colson published a book on accounting and arithmetic that included the first English tables of compound interest. Compound interest gained widespread acceptance after Richard Witt's Arithmeticall Questions, published in London in 1613, a year later.

The first life annuities were created in England and the Netherlands towards the end of the 17th century by combining age-dependent survival rates with interest calculations.

"Mastering in Money: A Blueprint for Financial Success"

 First of all,

Welcome to the Fundfortress blog, where you can find plenty of advice on managing your money and creating a more secure future. We'll look at this blog post's newest methods and trends to help you become financially literate. This road map will lead you to success whether your goal is financial independence, saving for a big purchase, or improving your overall financial health.

1. Embracing the Crypto Revolution: The financial world is still seeing a lot of movement in cryptocurrency. Examine the advantages and disadvantages of making investments in digital assets. We'll break down how to incorporate this new trend into your investment portfolio, from comprehending blockchain technology to navigating the wide variety of cryptocurrencies.

2. Sustainable Investing for a Greener Future: There is a growing trend toward socially conscious and sustainable investing. Find out how to achieve strong financial returns on your investments while keeping them in aligned with your values. We'll explore the criteria of ESG (Environmental, Social, Governance) and showcase investment opportunities in businesses that are positively affecting the environment.

3. Getting Around the Gig Economy: Both the gig economy and the way we work are changing. Regardless of your situation—freelance, side gig, or thinking about making the switch to gig work full-time—we'll go over the financial ramifications and offer advice on handling erratic income, making the most of tax benefits, and creating a safety net in the gig economy.

4. Making the Most of Credit Card Rewards in 2023: Credit card reward schemes are always changing. With the newest tactics to optimize your benefits—such as cash back, travel benefits, and special offers—stay ahead of the competition. We'll also go over the most recent credit card trends and how you can take advantage of them.

5. The Emergence of Apps for Financial Wellness: Technology is changing how we handle our finances. Learn about the newest apps for financial wellness that can improve your ability to save, invest, and budget. We'll look at tools that can improve your financial health, such as robo-advisors and AI-powered budgeting assistants.

 Conclusion: it's critical to remain knowledgeable and adjust to the constantly shifting field of personal finance as we begin a new year. You can take proactive measures to reach your financial objectives by adopting these trends and tactics. Cheers to a prosperous and empowered financial year ahead!

7 STAGE OF THE FINANCIAL LIFE CYCLE

 7 STAGE OF THE FINANCIAL LIFE CYCLE  

A lot of young people are not aware of what their financial goals ideally should be. Most of them fall into the habit of trading time for money. This contract wherein one person trades their time, money, and effort for an income is called employment and is generally viewed upon favorably by the world. It is considered good to be employed. However, many youngsters make the mistake of thinking that they will remain employed for their entire life. The fact of the matter is that the average life expectancy is now increasing beyond 75 years, whereas an average individual is likely to be employed for about 30 years of their life. Hence, they have to make 100% of the money in only 40% of the time.

In order to help the average middle-class person plan their financial goals, financial planners have developed the concept of the financial life cycle. It needs to be understood that these concepts may not be applicable to very rich or very poor people. Instead, this is the aspirational life cycle of most middle-class people around the world. In this article, we will have a look at the stages that an investor has to pass through.

Stage #1: Financial Dependence

Everyone who is born in this world is financially dependent upon their parents. Most people did not use to make big financial decisions before they are 18 years old. However, nowadays, a lot of middle-class students take college loans in order to further their education and prepare themselves for the job market. It is important to realize that these loans have to be repaid by earned income later in life. Hence, education loans should be taken only if they are financially viable. This is the reason why parents should undergo financial planning training so that they can aid their kids by preventing them from starting their life on the back foot. The objective of the financial dependence stage should be to accumulate minimum debt.

Stage #2: Solvency

Assuming that the students have passed the first stage, they move on to the next stage. The objective of this stage is to remain solvent. This is the stage wherein the individuals have just finished their education. As a result, they get entry-level jobs. These entry-level jobs pay them just enough to maintain a basic standard of living as well as to pay their old debt. It is important that the person maintain solvency during this stage and not accumulate excessive credit card debt because of frivolous spending. This stage lasts for about five to seven years.

Stage #3: Financial Dependence

This stage is where financial planning really becomes important. This is because, after five to seven years, the person is no longer in an entry-level job. Instead, they are likely to be in a mid-management position in the firm that they work in. Hence, their income is significant. Also, this is the stage that most people get married, meaning that two incomes become part of the household. This is a substantial increase from the subsistence existence mentioned in the earlier stage.

However, this stage is also marked by some of the biggest expenses in the life of an individual. This is because this is the stage wherein people buy houses, cars, vacations, etc. A significant amount of money is also spent on the wedding expense.

The most common mistakes of financial planning are also made at this stage. It is very easy for individuals to assume that life will continue the same way. However, for many, it does not. As the age of a person increases, they often have kids. Hence, the education and medical expenses of kids also increase a lot. However, income doesn’t increase proportionally. The end result is that people are left living paycheck to paycheck. About 70% of people spend their entire lives at this stage because of improper financial planning.

On the other hand, if an individual is financially aware and has been planning, they can supplement their own income with passive income because of the investments made earlier.

Stage #4: Financial Independence

This stage is the goal that most financial planners help their clients achieve. This is the stage wherein a person has built so many investments that their lifestyle can be maintained by the passive income generated from these investments. If the person has made financially correct decisions in the past, then this stage is characterized by a situation wherein working is optional. Investors have the freedom to spend their time with whomever they want and work in order to pursue their passions and hobbies. A person who is retiring needs to be at this stage at least.

Stage #5: Financial Abundance

Financial abundance is for a very small number of people. At this stage, an investor has so much money coming in via passive investments that they do not care about money too much. Instead, their decisions are motivated by the need to leave a legacy behind. Most people associate this stage with billionaires such as Bill Gates and Jeff Bezos. However, this is not true. There are several people whose net worth is a few million. However, because of their frugal lifestyle, they are at this stage.

Hence, the financial planning lifecycle encompasses the entire lifecycle of a person. There are different financial goals that need to be pursued at different stages. This is the reason that financial planning should be taught at the teenage level before any major life decisions have already been made by the individual.

THE BASIC OF FINANCIAL RESPONSIBILITY

THE BASIC OF FINANCIAL RESPONSIBILITY   

What does it mean to be financial responsibility ? It's a complete question with a complex answer , but at its core is a simple truth . To be financially responsible , you need to live within your means . And to live within your means , You must spend less than you make . 

. CREADIT CARDS AND DEBT : If you're really looking to be financially responsible, just being able to make your minimum monthly credit card payment doesn't cut it . In fact , the fact that you aren't able to pay your balance in full shows that you already spend more than you earn . Responsible use of credit means paying the balance on your account in full each month . 

. CONSIDER THE INTEREST : The same logic applies to all recurring payments that involve paying interest . Think about it : Paying interest on anything means that you are spending more on that item that the purchase price . Does that sound like the most responsible choice or just the most convenient ? 

. ACTING IN YOUR OWN BEST INTEREST : For many people , cutting down on interest and borrowing is easier said than done , but in practice , it really comes down to knowing the difference between necessities and luxuries . For example , you might need a car , but you don't need a top - of - the - line model and unless you can afford to pay for it in cash , you shouldn't be driving one . 

. PAYING YOURSELF FIRST - SAVING : Spending every dime that you earn is simply irresponsible unless you have a massive trust fund that is so flush with cash that you will never outlive the earnings . For most people, especially those of us hoping to retire someday , saving is an activity that must be taken seriously . A great way to do this is when you get your paycheck - and before you pay your bills - pay yourself first . A good goal to save is 10% . 

. DON'T KEEP UP WITH THE JONESES : Financial responsibly means doing what you have to do to take care of your needs and the needs of your family . To make this happen , your focus should be internal . The neighbors aren't paying your bills , so their spending habits shouldn't dictate yours or set the bar for your standard of living . 

. ARRIVING At ''RESPONSIBLE'' : Ultimately , financial responsibility means living within your means , regardless of the level of those means . So take a close look at your financial situation , evaluate your earning and spending habits , and make the necessary adjustment to put yourself on responsible financial footing .    

 

HOW TO KEEP TRACK OF MULTIPLE CREDIT CARDS

Many people, have multiple credit cards . But having too many credit cards can often be too much to juggle . It can lead you to lose track of some of your credit cards which can be a devastating mistake . You may have a bulging wallet filled with credit cards can be happy . 

1. PAYING YOUR CREDIT CARD BALANCE TIMELY : Why is it detrimental to your credit if your credit cards are a mess, you ask ? Each credit card you have is unique in many aspects.

2. THE PERFECT TIME TO PAY YOUR BILL : To add to that, there's that perfect time to pay a credit card bill . It is best to pay a card balance after the card statement prints each month . That makes it clear to the credit bureaus that your cards is active and being used . If your card has no balance for a few month, it is seen as inactive by the scoring models . At that point, the will no longer help your credit scores . 

3. PAYING THE CARD'S ANNUAL FEE : We talk about paying a credit card bill timely . On top of that , many credit cards have an annual fee . An annual fee is a fee that a cardholder has to pay . It is usually a lump sum once a year . You need to pay the fee in order to remain a member of the card . 

4. MAXIMIZING REWARDS : Another aspect you would lose out on if your credit cards are out of hand , is on card rewards . Many cards have amazing rewards structures and earn points on many categorized purchases such as travel , dinning , groceries , gas , shopping , and more . 

5. KNOWING HOW TO USE YOUR CARDS : In order to earn the cashback , you have to actually pay for the gas with the card . But if you've got no clue that you can earn cashback when you use the card for gas , you'll be missing out on those rewards . If you are oblivious to which rewards your card earns an which card to swipe for each purchase you make , you gain nothing from the card rewards . which is a shame . 

6. REAPING CARD BENEFITS : Many credit cards also have benefits which may enhance your travelling experience . This includes auto rental insurance , lost luggage reimbursement , no foreign transaction fees , and more . There are also benefits that come in handy when shopping . Purchase protection , extended warranty , and price protection , are some examples .    

 

  

LIFE HACKS TO SAVE MONEY

.  PRACTICAL LIFE HACKS TO SAVE MONEY AND LIVE FRUGALLY .

In today's world, saving money has become more important than ever . With the rising cost of living , high inflation rates, and economic instability, many people are struggling to make ends meet . Fortunately, there are many simple and effective life hacks that can help you cut back on expenses and save money . Whether you're trying to pay off debt, save for a big purchase, or just build up your savings, these hacks can help you make your money go further . 

In this list of life hacks to save money, we've complied some of the most effective and actionable tips for reducing your expenses and keeping more money in your pocket . From groceries to entertainment, transportation to household items, these hacks cover a wide range of areas where you can make changes to save money . Some of these tips may be familiar, while others may be new to you . But all of them are designed to be practical, timely , and relevant to your life .

1. SHOP AT DISCOUNT GROCERY STORES FOR GROCERIES : Shopping at discount grocery stores can save you a lot of money on your grocery bill . These stores offer quality product at lower prices than traditional supermarket . 

2. USE CASHBACK AND REWARDS CREDIT CARDS TO EARN REWARDS ON PURCHASE : Credit cards that offer cashback or rewards point can be a great way to earn extra money on your purchases . Just be sure to pay off your balance in full each month to avoid interest charges .

3. MAKE YOUR OWN COFFEE AT HOME INSTEAD OF BUYING IT  FROM A COFFEE SHOP : Buying coffee shop can add up quickly . Making your own coffee at home is simple way to save money and still enjoy your favorite beverages . 

4. USE A LOW - FLOW SHOWERHEAD TO SAVE ON WATER COSTS : Using a low - flow showerhead is a great way to save money on your water bill . It can also help reduce water usage and conserve water . 

5. USE A BICYCLE TRAILER TO CARRY GROCERIES AND OTHER ITEMS INSTEAD OF DRIVING : Using a bicycle trailer to carry groceries and other items is a great way to save money on gas and reduce your carbon footprint . 

6. BRING YOUR LUNCH TO WORK INSTEAD OF EATING OUT : Bringing your lunch to work can save you a lot of on lunch expenses . It's also a great way to eat healthier and control what you eat  .    

AI CHATBOTS : THE FUTURE OF PERSONAL FINANCE MANAGEMENT

 . EXPLORING  THE  POTENTIAL  IMPACT OF  AI  ON  FINANCIAL  ADVICE AND DECISION -  MAKING .

The  advent of artificial intelligence (AI) has brought about a seismic shift in numerous sectors, including healthcare , transportation , and of course , finance . But the story of AI is just beginning , and its full of potential is yet to be fully realized .Among the plethora of AI applications , one that stands out for its potential to revolution the way we manage our money is the AI chatbot . 

. THE CURRENT STATE OF PERSONAL FINANCE MANAGEMENT . 

The realm of personal finance management has traditionally been one of face -to -face interactions, paper trails , and human advisors / counselors . Individual seeking advice to managing their finance has typically relied on financial advisors for in-depth guidance or turned to resource such as books, seminars, and online articles for self- education . However , this approach has often been time- consuming, expensive , and not always accessible to everyone . 

. UNDERSTANDING AI AND CHATBOTS . 

Artificial intelligence, or AI is a branch of computer science focused on creating systems capable of performing tasks , that typically require human intelligence . These tasks include learning , understanding language , recognizing patterns , problem-solving , and decision - making . In the context of personal finance . AI can analyze large volume of financial data , identify patterns , and make predictions or recommendation based on that analysis . 

     

  

ADVANTAGES AND LIMITATION OF A BUDGET

. In this article , we will have a closer look at the advantages and disadvantages of budgeting .

. ADVANTAGES OF A BUDGETS : 

1 . The harsh reality of personal finance is that people spend a lot of their money subconsciously . If these people knew the big picture about how their frivolous expenses such a eating out and vacations were impacting their long term goals , they would probably cut down on some expenses . This is where a budget helps them . A budget provides the big picture to an investor and, in the process of doing so , compels them to do financial planning . 

2 . Another major problem in personal finance is that many people do not realize the impact that small monthly payments have on their savings and net worth . When a person does a written budget , they know exactly how an increase in monthly payment will impact them . This prevents people from undertaking unnecessary expenses . As a result , people who a written budget find themselves in fewer financial problems in the course of their lifetime .

. LIMITATION OF A BUDGETS :

1 .  People who makes budgets for the first time are not very successful in doing so. This is because budgets are based on assumptions . Hence , if the underlying budgets are extremely strict or based on unrealistic assumptions , then the user will not be able to follow them and use them . Over a period of time , people get tired of the disappointment that the budgeting process brings along . This is the reason that they simply give up the process in the long run . 

2 . Simply budgeting will not help a family . If they keep on adding wasteful expenditure to the budget , their savings rate will not increase . The process of budgeting brings alone a certain level of introspection . If that is not done , simply writing down numbers on a piece of paper does not proves to be of much use . 

CONCLUSION - The bottom line is that a budget is an important tool that can be used in the process of financial planning . However , its usefulness is subjective. some investors derived a greater value from the budgeting process than the others.    

WAYS TO AVOID OVERSPENDING THIS FESTIVE SEASON

 In festive season , there are a lot of things it means -  meeting friends and relatives, buying gifts , socializing , partying and all the fun . However , none of us want to end up in a financial mess after the festive season is over . It could be a huge credit card bill which cannot be paid off in time . It could mean that you have no money left for your regular investments just because you have spent more money than you actually should .  

While your expenses will go up during the festive season and there is not much you can do about it , you can still keep it under control . We tell you some ways to avoid overspending in the festive season . 

. HAVE A BUDGET : 

The first and most important things to do is to have a budget . List down all the expenses you are likely to have , Whether it is buying gifts , eating out , going on a holiday and so on and figure out how much you will be spending . If you planned in advance and have a some cash to dip into , that is great , but in case you haven't , you would need to cut down on your spending 

. TRACK YOUR EXPENSES :

Having a budget is half the battle won . Track your expenses and try to stick to your budget . Every time you overshoot a budget , it should act as a red flag . If you are spending more than your budget , but only some . If you overspend a lot more it will mean trouble . 

. AVOID BUYING ON CREDIT AS MUCH AS POSSIBLE : 

It is for moments like this a credit card is for , you would think . Which is true , just that you have to pay off your credit card dues in full every month . Every time you buy a gadget on EMI, like a mobile phone or a watch , that gets added up to your credit card bill . Now there are lot of buy now , pay later options . There are zero interest free credits up to a certain period and so on . Plus getting such credit is very easy , it takes almost no times and minimal paperwork . 

                                                                                                           

                                                                                                                                                                                            

INFORMATION ABOUT PERSONAL FINANCE

 INFORMATION ABOUT PERSONAL FINANCE   

Personal finance , as a term , covers the concepts of managing your money , saving, and investing . It also includes banking , budgeting , mortgages , investments , insurance , retirement planning and tax planning . One can consider that personal finance comprises the entire industry that provides financial services to individuals and advises them about opportunities .

1. WHAT IS PERSONAL FINANCE  ? 

Personal finance is mostly about realizing  personal financial goals . Whether it's saving enough for short - term financial needs , planning , for retirement , or saving for your child's college education . Mostly it depends on your income , expenses , living requirements , and individual goals , and the plan you make to fulfill those goals within your financial constraints . 

2 . WHY IS PERSONAL FINANCE IMPORTANT  ? 

It's very important to become financially literate in order to make the most of your income and savings . Financial literacy helps you distinguish between good and bad financial advice and make savvy decisions . 

Few schools offer courses on managing your money , So it is important to learn the basics through free online articles , courses , blogs , podcasts , or at the library .

The new concepts , smart personal finance involves developing strategies that include budgeting , creating an emergency fund , paying off debt , using credit cards wisely , saving for retirement , and more . 

  

SAVING AND INVESTING FOR YOUR FUTURE

SAVING AND INVESTING FOR YOUR FUTURE  

 Saving and investing are two different concepts , but in practice . They are closely related to each other . Typically , we save first before we invest , Saving is setting money aside for us at a later time . Investing is using resource ( usually money ) with the expectation that it will generate increased income or grow in value . 

1. WHAT HAPPENS IN AN EMERGANCY ? 

Sometimes , it's hard to imagine where you might find money to save . Start by taking a look at your spending and saving plan . You may decide to prioritize your spending differently , Cut current expenses , find additional income, save gift money, bonuses , income tax refund , or something else, depending upon your goals . 

2 . MAKE A PLAN AND STICK TO IT . 

There are many different ways to save money to meet your needs and goals . Some examples would include automatic saving , saving coins , banking savings on coupons or refunds . Just think about what works best for you . One suggestions is, that when you receive money , '' pay yourself first '' as a way to plan ahead to save money overtime . When you pay yourself first , you put an amount of money away first into savings , before we spending on other items . 

3 . IT IS NEVER TOO LATE TO SAVE AND INVEST . 

Saving and investing are both important to consider in your future planning . Through saving money money , your money is kept safe , and easy easy to access should you need it . By investing early over time , your money grows in value , benefiting from the magic of compounding . 

Remember that investing early , along with compound interest , can result in higher investment amounts versus a late investment start . Take time to think through your savings needs and goals , both now and for your future . 

PROCESS OF FINANCIAL PLANNING

 PROCESS OF FINANCIAL PLANNING 

The financial goal of most people is to become wealthy . This is the reason why a lot of people are seen chasing their dreams of higher income . This is because, in their mind, a higher income correlates with being healthy. A lot of the time, it negatively affects their health and happiness also. The normal assumption is that if a person has higher income, then they will also have a higher net worth in the future. however, this is not the case . 

The stories of many high - income earners going bankrupt later on in life are not uncommon . these stories can be found in the high earning professional class as well as amongst celebrities. The reality is that long term wealth has been associated with a long term tendency to consistently engage in financial planning . people who pay attention to their finance and takes regular action on a month on month basis to end up being wealthier as compared to their peers.

. In this article, we will have a closer look at the process of financial planning and how it helps maximize wealth over the long run . 

. What does financial planning include ? 

. The goal of financial planning is to ensure that the financial resources of a person are channeled in an optimum way . The objective is to ensure that a person has whatever amount of money they need at certain point in time .

. Human beings tend to have different types of financial goals . Hence, it is no surprise that financial planning is itself internally composed of many different disciplines . Some of the them have been listed below : 

. Planning to acquire assets . 

. Investment planning . 

. Tax planning . 

. Planning of retirement . 

Steps followed in financial planning ?

There are certain predefined steps that need to be followed in order for effectively financial planning . The steps have to be carried out in the sequence mentioned  below :

 1. STEP#1 - Decide on your life goals : A typical financial planning session starts with goal alignment . When people are asked about what they would want from their lives, they often tend to start narrating their financial fantasies of several cars, big mansions, etc. It is important to be realistic at this step . The idea is to segregate the needs from the wants .

 2. STEP# 2 - Know your current situation : The goals should be created, keeping in mind the current financial situation . For intense, if a person is already deeply debt, then they should try to first get out of debt before they can plan their finances effectively . The current incomes and the possibility of change in these incomes should be looked at conservatively before coming to the goals . 

3. STEP# 3 - Evaluate investment alternatives : The next step is to allocate the disposable income to life goals . The idea is to use the best investment vehicle which will provide maximum returns . For instance , if life goals are retirement, using individual retirement accounts is one of the best ways to save money . 

4.STEP# 4 - Set up the investment plan : Finally , after all alternatives have been considered , the investor reviews the final portfolio , which has been decided , This money is than allocated and paid on a month on month basis . 

CONCLUSION - THE BOTTOM LINE IS THAT FINANCIAL PLANNING IS A COMPLEX DISCIPLINE THAT INCLUDES SEVERAL OTHER DISCIPLINES LIKE  RETIREMENT PLANNING , TAX PLANNING , ASSET ACQUISITIONS ETC .

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ESSENTIAL TIPS FOR BUILDING WEALTH AND FINANCIAL INDEPENDENCE .

  ESSENTIAL TIPS FOR BUILDING WEALTH AND FINANCIAL 

1. Automate Your Saving : Setup automatic transfer from your checking account to a separate saving account or investment account. This way, you will consistently save money without having to replay on willpower alone .

2. Review and Rebalance Your Portfolio : Regularly review your investment portfolio to ensure it aligns with your financial goals and risk tolerance. Rebalance your portfolio periodically by adjusting your asset allocation to maintain diversification .

3. Be Mindful of Debt : Minimize high-interest debt, such as a credit card debt, as it can erode your financial progress. prioritize paying off high-interest debt, such as mortgages or student loans .

4. Guard Your Health : If you're uninsured, don't wait to apply for health insurance. If employed, your employer may offer health insurance, including High-Deductible Health Plans that save on premiums and qualify you for a (HSA) HEALTH SAVING ACCOUNT, If you're under the age of 26, you may be to stay on your parent's health insurance, an option that has been allowed since the 2010 passage of the (ACA) AFFORDABLE CARE ACT. If you need to buy insurance, investigate the federal and state plans offered by the Health Insurance Marketplace of the ACA . Look at quotes from different insurance providers to find the lowest rates, research all your options to see if you qualified for a subsidy based on your income . 

5. Learn to Budget : Once you've read a personal finance article, you will understand two rules. Never let your expenses exceed your income, and watch where you money goes. The best way to do this is by budgeting and creating a personal spending plan to track the money coming in and going out. Tracking expenses, like your expensive morning coffee, can provide a valuable wake-up call. small changes in your everyday expenses are under your control and can impact your financial situation. Keeping monthly expenses, like rent, as low as possible can save you money overtime and put you in a position to invest in your own home sooner than later.

CONCLUSION : By following sound financial principle, managing debt effectively, building an emergency fund, making informed investment decisions, planning for retirement, and staying informed, you can pave the way to financial stability and long-term wealth .

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