Personal finance

Personal finance refers to the methods in which an individual manages his money assets and real assets.

Examples of money assets are cash and money market instruments.

Examples of real assets are land, buildings, furniture’s, equipment, etc.

Uses of Personal Budget

1. It makes us live within our income.
2. It shows how money is to be spent and how it is being spent.
3. It helps to control expenditure and ensure self or financial discipline.
4. It guarantees maximum satisfaction.
5. It enables families communicate their financial conditions to members.
6. It inculcates saving habits.
7. It enforces lessons learnt from popular financial equation.
8. It indicates the need for additional or surplus budget.

Sources of Finance for Individuals

The following are common sources of finance for individuals;

1. Loans from banks, individual, cooperative society and financial institution.
2. Personal savings, profits on business, commission, rents or rates from bank or people
3. Borrowing from friends and relations or family members.
4. Credit facilities from supplier, Producers or marketers.
5. Wages, salaries, award, gift, or promotion from advertising or other agencies.

Consumption and Choice

Consumption is defined as satisfaction or utility. It is the end of the production process.

Choice is defined as making a decision or selection from a list of items.

What an individual chooses depends on his purchasing power, prices of the goods and what he likes, it is therefore necessary to choose items of necessities and not luxury. Such items are food, shelter, clothing, education and medical care.

Scale of Preference

This is the arrangement an individual needs in order of priority or importance.

Meaning of Modesty

This is a situation whereby an individual is spending or living within his/her available income.

Attributes of Modesty

These are the attributes of modesty:

1. simplicity
2.  Honesty
3. prudence
4.  Contentment

Effects of Modesty

(a) It gives peace of mind.

(b) It ensures self control.

(c) It makes to be highly esteemed.

(d) It relieves us of stress.

(e) It instills a low tendency for corrupt practices.

(f) It elevates our moral status and spiritual lifestyle.

(g) It promotes friendliness and social peace.

Links between Modesty and Extravagance

The link between Modesty and Extravagance is that one is the opposite of the other.

1. Modesty ensures simplicity while extravagance is excessive or unnecessary spending.
2. Modesty is living within your means, not borrowing; extravagant is living above your means, borrowing to live.
3. Modesty entails careful spending; Extravagance is careless or thoughtless spending.
4. Modesty guarantees honesty and prudence. Extravagance leads to corruption and expensive lifestyle.
5. Modesty reveals person with a high level of discipline, but extravagance dictates individuals that have a low level of discipline.

Preparation of Personal or Individual Budget

A budget is a tool for national planning. It is a tool for financial planning. Before preparing a budget you should take the following instructions into consideration.

1. Identify a goal (ii) Review your bank and credit card statement for the past three months (iii) Categorize your expenses. E.g rent, loan prepayment, child welfare and utility bills (iv) Plan bills that occurs only once or twice a year. (v) List all your income for the month (vi) Subtract your total expenses from your total income (vii) Review your monthly spending and adjust your expenses category as needed.

The Process or Procedures for Preparing a Budget

1. Estimate your income: daily, weekly and monthly.
2. Define major expense categories and set the budget level.
3. Develop a worksheet to accumulate daily expenses.
4. Use the budget summery sheet to monitor and control expenses.
5. Periodically review the budgeting system to make it flexible.
6. Allocate a certain amount for miscellaneous expenses.
7. Save regularly.
8. Start of by making a monthly budget, thereafter a yearly budget.

Budget Preparation

To prepare a budget, you must have an idea of what you should expect. You can view a data compiled from Federal office of Statistics how four family spend their income. Compare these with your expenditures and categorize the area you fall in. The major items are: Income items, expenditures items, and irregular items.

(i) Income items: (a) Salaries (b) Wages (c) Rates (d) Commission (e) Rent (f) Pensions (g) Allowances (h) Sales (i) Cooperative earning (j) Alimony support (k) Public assistance

(ii) Expenditures Items: (a) Rates (b) Mortgages (c) tax (d) utility bills (e) mortgage (f) medicals (g) Food (h) Transportation (i) Insurance (j) Repairs and maintenance (k) Recreational or Entertainment (l) Licenses. (m) Food (n) Drinks.

(iii) Irregular Items: (i) Lunch at work (ii) Car repairs © Hair cuts (d) Day care (e) Laundry (f) Day care (g) Emergency fund.

Savings = Income – total expenses.

Activity 1: Students are to narrate to the class, if they had or have a saving box, the way they saved, and how they spent the money.

Activity 2: Student are to share with the class how they manage their tucshop money for the last term.

EVALUATION

1. What is personal finance?
2. List the sources of individual finance.
3. Define scale of preference.
4. Give the meaning of consumption and choice.
5. Define modesty.
6. What the effects of modesty?
7. Outline the attributes of modesty.
8. State the links between modesty and extravagance.
9. Explain how to prepare a personal or individual budget.