Money spend without proper planning is money wasted, therefore, it is inevitable for a personal financial plan, which acts as a blueprint to spending, Ramsey (2007). The purpose of personal financial plan is to direct finances to the three main categories of personal objectives, which are spending, savings and investing. Sources of personal incomes include mainly career remunerations and incomes from personal business incentives. Personal income is highly determined by the career line of an individual, competitive careers result into more personal income. Personal financial choices also play a role in determining the amount of income netted by an individual; this is mainly determined by the type of investments one ventures into.
Because of the limited nature of resources it is, therefore, credible to have a personal budget of spending, saving and investing. A personal budget should be designed with a futuristic attitude, and according to the level of earnings, no one of the three arms of the personal budget should be underplayed, Ramsey (2007). Savings and investments should be allowed a greater proportion of personal income in the budgeting. Consumer credit can be good and bad at the same time, good because of the concept of time value of money, i.e. goods worth consumed today on credit may be worth more in future but they will be paid on today’s price. It is bad because one may be tempted to overspend when payment is not in prompt. Credit consumption presents problems in budgeting, because it is like consuming future budget today. Consumer credit can be checked by learning to budget what is at hand rather than budgeting what is yet to be received. Personal budget is better when in cash than when it is planned on credit terms. A good balance should be struck between savings and investment, money should not lie idle when there are good opportunities to invest in, however, if investments are too risky, money can remain in savings account for future use, Bach (2007).
References
Bach, D. (2007). Start late Finish rich: A no fail plan for achieving financial freedom at any age. USA: Crown Business
Ramsey, D. (2007).The total money makeover: A proven plan for financial fitness. USA: Thomas Nelson
Ramsey, D. (2007). Total money makeover workbook. USA: Thomas Nelson
