To be successful in stock trading and investing you should know at least the basics of personal finance. Personal finance is the act of applying principles and concepts of financial economics to the financial decisions of individuals and households. The practice of personal finance deals with the ways by which individuals and households optimally acquire , save, invest and spend financial resources over time, taking into consideration the subject’s current and expected financial condition as well as financial risks and other events. Elements of personal finance may consist of the management of savings accounts, credit cards and consumer debt, investments in the financial markets, real estate, retirement plans, insurance plans, and taxes.
One can optimally exercise the personal finance practice through the process of financial planning. Financial planning is a dynamic process that is comprised by four key steps: evaluation, goal setting, planning, and finally execution and monitoring.
1. Evaluation. You have to know your actual financial condition if you wish to make sure that you will be able to maintain your current lifestyle and determine how much you will be able to consume in the future. An individual’s financial condition can be evaluated by compiling simplified versions of financial balance sheets and income statements. An individual’s balance sheet is a report that is comprised by assets (what someone owns) and liabilities (what someone owes). The balance sheet displays the particular values of private assets (e.g., cars, residence, savings accounts, bonds, stocks, mutual funds etc), as well as debt (e.g., credit cards debt, personal loans, mortgage loan). An individual’s income statement is a report that is comprised by the individual’s income and expenses for a specified period. An individual’s income may include his salary, interest payment on his savings account as well as stock dividends. Expenses may include mortgage installments, utility bills and credit card interest payments.
2. Goals setting. The famous quote “If you don’t know where you’re going, how will you know when you get there?” illustrates the importance of setting your goals. Managers and businessmen insist that goals have to be Specific, Measurable, Attainable, Realistic and Time-oriented (S.M.A.R.T.). A S.M.A.R.T. goal could be “Obtain a house in 3 years using $100,000 from the savings account and a mortgage with monthly payments which are at most 25% of my monthly net income” and “Retire at the age of sixty eight with a net worth exceeding $2,500,000″. Typically, in most financial planning cases there is a combination of short term and long term goals. S.M.A.R.T. goals setting is an essential part of proper financial planning.
3. Setting up your plan. Typically a financial plan highlights the way to achieve your goals. Your financial plan could consist of repaying credit card and consumer debt to reduce interest payments, reducing avoidable expenses, increasing employment or business income as well as investing a part of your savings in stocks, mutual funds or exchange traded funds (ETFs).
4. Execution and Monitoring. The proper execution of the financial plan requires discipline and monitoring. One has to monitor the execution of the financial plan in order to check whether the actions taken lead to the achievement of the specified short term and long term goals.
StockTradingCollege.com, Stock Trading and Investing for Beginners
One can optimally exercise the personal finance practice through the process of financial planning. Financial planning is a dynamic process that is comprised by four key steps: evaluation, goal setting, planning, and finally execution and monitoring.
1. Evaluation. You have to know your actual financial condition if you wish to make sure that you will be able to maintain your current lifestyle and determine how much you will be able to consume in the future. An individual’s financial condition can be evaluated by compiling simplified versions of financial balance sheets and income statements. An individual’s balance sheet is a report that is comprised by assets (what someone owns) and liabilities (what someone owes). The balance sheet displays the particular values of private assets (e.g., cars, residence, savings accounts, bonds, stocks, mutual funds etc), as well as debt (e.g., credit cards debt, personal loans, mortgage loan). An individual’s income statement is a report that is comprised by the individual’s income and expenses for a specified period. An individual’s income may include his salary, interest payment on his savings account as well as stock dividends. Expenses may include mortgage installments, utility bills and credit card interest payments.
2. Goals setting. The famous quote “If you don’t know where you’re going, how will you know when you get there?” illustrates the importance of setting your goals. Managers and businessmen insist that goals have to be Specific, Measurable, Attainable, Realistic and Time-oriented (S.M.A.R.T.). A S.M.A.R.T. goal could be “Obtain a house in 3 years using $100,000 from the savings account and a mortgage with monthly payments which are at most 25% of my monthly net income” and “Retire at the age of sixty eight with a net worth exceeding $2,500,000″. Typically, in most financial planning cases there is a combination of short term and long term goals. S.M.A.R.T. goals setting is an essential part of proper financial planning.
3. Setting up your plan. Typically a financial plan highlights the way to achieve your goals. Your financial plan could consist of repaying credit card and consumer debt to reduce interest payments, reducing avoidable expenses, increasing employment or business income as well as investing a part of your savings in stocks, mutual funds or exchange traded funds (ETFs).
4. Execution and Monitoring. The proper execution of the financial plan requires discipline and monitoring. One has to monitor the execution of the financial plan in order to check whether the actions taken lead to the achievement of the specified short term and long term goals.
StockTradingCollege.com, Stock Trading and Investing for Beginners