The term “personal finance” may be accurate in that it is particular to an individual, but the components that make up one’s finances have little to do with his own decision to spend.
Examples of Personal Finance Decision
-Financing goods (cars, real estate)
-Purchasing insurance (health, property)
-Paying for education (private school, universities)
-Investing or saving for retirement
-Paying off a debt obligation or loan
Financial Position—Step One
This is the first key area when dealing with personal finance and planning. It is used to analyze the personal resources one has by considering household cash flow and net worth.
Adequate Protection—Government Imposed
When deciding how to protect a household from Mother Nature and other unforeseen risks, the government laws and regulations greatly factor in. When the national debt soars, the population turns on the government and wonders how it got so bad. Yet when a natural disaster occurs, each and every person affected expects the government to miraculously fund construction to fix everything. One can hardly blame the higher-ups for imposing rules or guidelines designed to help cover at least the minimum of something’s worth.
Tax Planning—Government Regulation
For a majority of households, income tax is the largest expense. Since paying taxes is not an option but a law, tax planning in one’s personal finances determines how much tax to pay and when. While this is another example of how the government greatly affects an individual’s capital, it is good to know that incentives are available, such as credits and tax deductions.
Accumulation and Investment Goals—Private
A plan to save a large amount of money for a life event or a big purchase such as starting a business, buying a house, or playing the stock market is the most private part of one’s personal finances.
Retirement Planning—A Necessity
Most methods for retirement take advantage of any government structured program available, such as employer sponsored retirement plans or social security benefits. While this is definitely a positive after paying all kinds of taxes and fees throughout a lifetime, it is another way that the government factors in to one’s personal finances. After figuring out the amount one will accumulate from these allowances, he must calculate how much more he will need to personally have in the bank for those golden days.
Estate Planning—Last Area of “Personal” Finances
Though a morbid thought to some, preparing documentation and financial factors for after one’s death is an important part of his finances. Unfortunately, the government plays a big role in this area as well. Typically following the end of a life, the federal or state government is owed a tax. Leaving assets to friends, family, or charities is the most common way to avoid this, but is not always an option. There is also the decision of burial versus cremation, and the payment for such services. Though most are grateful for these honorable choices, they are also required and enforced by the government.
The Other Point of View
Still, there are a number of individuals who discredit these facts and stubbornly claim that his or her personal finances have nothing to do with what goes on in Washington, but what goes on within the household. A family can live below their means and on a budget, build an emergency fund, invest in a 401k, and pay off all of their debt—that is entirely possibly. However, it is also a possibility that the next tax imposed be on a personal loan they took out or on a credit card variety they currently possess. The bottom line is that the government has the means to make or break personal finance, and they clearly already play a majority role in one’s financial structure.
Author Bio: Joshua Turner is a writer who creates informative articles in relation to business. In this article, he offers financial advice to individuals and aims to encourage further study with an online masters of public policy.