Personal Finance – Lesson 5
Factors affecting your personal finance planning
The first factor influence personal financial planning is gender. Females have often been found to possess less financial knowledge and interests compared to males. Females are intrinsically right brain thinkers which serve them better in nurturing roles as wives, mothers and homemakers rather than financial matters. Despite being responsive to financial education, females were found to possess a lower retirement age and income goals. Females also tend to be risk adverse in financial choices.
Women know less about financial management than men. In comparison to men, women share a larger burden of raising families, start to work later and earn less during their careers, live longer, have inadequate pension or survivors’ benefits, and face more challenges in financial management. Risk adverse behavior of women in their retirement planning will likely result in significantly lower pension wealth than men.
Second factor that influence personal financial planning is age. Generally, older individuals are more conservative and risk adverse. The deeper life experiences may encourage the acquisition of skills to secure their financial aspirations in their life. Nowadays, youth prefer to use credit cards which is can cause them to become bankruptcies in early ages. Low financial knowledge may leading to high level debts, risk of bankruptcy and lacking retirement planning skills among youth. Age can influence personal financial planning management among people.
Third, factor that can influence personal financial planning management is personal income. Personal income can influence people by different level of income that different people monthly. It is also linked with age. Typically, people with low incomes fall into the very young or very old age groups. Tax management is important in order to avoid loss in their income. Sources of income which can be taxed includes gains and profits from trade, profession and business, salaries, remunerations, gains and profits from an employment, dividends, interests or discounts, rents, royalties or premiums, pensions, annuities and others.
Fourth, another factor that can influence personal financial planning management is level of education. Level of formal education is a controllable factor that significantly affects the income. More high education tends to get great earning in their life. Less knowledgeable investors are more prone to hold a widely diversified asset portfolio, financial knowledge has also been found to positively reinforce financial satisfaction. Financial literacy improves the exposure and understanding of the risks associated with the complexity of retirement, insurance and investment planning. Thus, higher education levels are expect to be associated with higher financial awareness among people.
Fifth, investments planning also can influence people in their personal financial planning. Investment planning is the part of financial planning that pertains to the allocation of investment assets. There are a variety of different types of investments available today, which are short-term investments, long-term investments, and as many different investment strategies as there are investors. Obviously, there are differences between short-term and long-term investments. Short-term investments are designed to be made only for a little while, and hopefully show a significant yield, for examples shares, insurance, securities bought and others. Long-term investments are designed to last for years, showing a slow but steady increase so that there is a significant yield at the end of the term for example bonds, gold, long term notes, and others.
Sometimes the individual have failed to make a successful financial planning. Most of the time, they cannot balance between the saving, expenses and investment portion. A key component of personal finance is financial planning process and it has six major steps, which are define financial goals, develop financial plans and strategies to achieve goals, implement financial plans and strategies, periodically develop and implement budgets to monitor and control progress towards goals, use financial statements to evaluate results of plans and budgets by taking corrective action, redefine goals and revise plans and strategies.