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A comparitive study of personal_finance

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Personal finance[edit]
Main article: Personal finance
Questions in personal finance revolve around:
Protection against unforeseen personal events, as well as events in the wider economy
Transference of family across generations (bequests and inheritance)
Effects of tax policies (tax subsidies and/or penalties) on management of personal finances
Effects of credit on individual financial standing
Development of a savings plan or financing for large purchases (auto, education, home)
Planning a secure financial future in an environment of economic instability
Personal finance may involve paying for education, financing durable goods such as real estate and cars,
buying insurance, e.g. health and property insurance, investing and saving for retirement.
Personal finance may also involve paying for a loan, or debt obligations. The six key areas of personal
financial planning, as suggested by the Financial Planning Standards Board, are:[1]
Financial position: is concerned with understanding the personal resources available by examining net
worth and household cash flow. Net worth is a person's balance sheet, calculated by adding up all assets
under that person's control, minus all liabilities of the household, at one point in time. Household cash
flow totals up all the expected sources of income within a year, minus all expected expenses within the
same year. From this analysis, the financial planner can determine to what degree and in what time the
personal goals can be accomplished.
Adequate protection: the analysis of how to protect a household from unforeseen risks. These risks can
be divided into liability, property, death, disability, health and long term care. Some of these risks may
be self-insurable, while most will require the purchase of an insurance contract. Determining how much
insurance to get, at the most cost effective terms requires knowledge of the market for personal
insurance. Business owners, professionals, athletes and entertainers require specialized insurance
professionals to adequately protect themselves. Since insurance also enjoys some tax benefits, utilizing
insurance investment products may be a critical piece of the overall investment planning.
Tax planning: typically the income tax is the single largest expense in a household. Managing taxes is not
a question of if you will pay taxes, but when and how much. Government gives many incentives in the

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form of tax deductions and credits, which can be used to reduce the lifetime tax burden. Most modern
governments use a progressive tax. Typically, as one's income grows, a higher marginal rate of tax must
be paid. Understanding how to take advantage of the myriad tax breaks when planning one's personal
finances can make a significant impact in which it can later save you money in the long term.
Investment and accumulation goals: planning how to accumulate enough money - for large purchases
and life events - is what most people consider to be financial planning. Major reasons to accumulate
assets include, purchasing a house or car, starting a business, paying for education expenses, and saving
for retirement. Achieving these goals requires projecting what they will cost, and when you need to
withdraw funds that will be necessary to be able to achieve these goals. A major risk to the household in
achieving their accumulation goal is the rate of price increases over time, or inflation. Using net present
value calculators, the financial planner will suggest a combination of asset earmarking and regular
savings to be invested in a variety of investments. In order to overcome the rate of inflation, the
investment portfolio has to get a higher rate of return, which typically will subject the portfolio to a
number of risks. Managing these portfolio risks is most often accomplished using asset allocation, which
seeks to diversify investment risk and opportunity. This asset allocation will prescribe a percentage
allocation to be invested in stocks (either preferred stock and/or common stock), bonds (for example
mutual bonds or government bods, or corporate bonds), cash and alternative investments. The
allocation should also take into consideration the personal risk profile of every investor, since risk
attitudes vary from person to person.
Retirement planning is the process of understanding how much it costs to live at retirement, and coming
up with a plan to distribute assets to meet any income shortfall. Methods for retirement plan include
taking advantage of government allowed structures to manage tax liability including: individual (IRA)
structures, or employer sponsored retirement plans.
Estate planning involves planning for the disposition of one's assets after death. Typically, there is a tax
due to the state or federal government at one's death. Avoiding these taxes means that more of one's
assets will be distributed to one's heirs. One can leave one's assets to family, friends or charitable
groups.
Corporate finance[edit]
Main article: Corporate finance
Corporate finance deals with the sources of funding and the capital structure of corporations and the
actions that managers take to increase the value of the firm to the shareholders, as well as the tools and
analysis used to allocate financial resources. Although it is in principle different from managerial finance
which studies the financial management of all firms, rather than corporations alone, the main concepts
in the study of corporate finance are applicable to the financial problems of all kinds of firms. Corporate
finance generally involves balancing risk and profitability, while attempting to maximize an entity's
wealth and the value of its stock, and generically entails three primary areas of capital resource
allocation. In the first, "capital budgeting", management must choose which "projects" (if any) to
undertake. The discipline of capital budgeting may employ standard business valuation techniques or

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Personal finance[edit] Main article: Personal finance Questions in personal finance revolve around: Protection against unforeseen personal events, as well as events in the wider economy Transference of family across generations (bequests and inheritance) Effects of tax policies (tax subsidies and/or penalties) on management of personal finances Effects of credit on individual financial standing Development of a savings plan or financing for large purchases (auto, education, home) Planning a secure financial future in an environment of economic instability Personal finance may involve paying for education, financing durable goods such as real estate and cars, buying insurance, e.g. health and property insurance, investing and saving for retirement. Personal finance may also involve paying for a loan, or debt obligations. The six key areas of personal financial planning, as suggested by the Financial Planning Standards Board, are:[1] Financial position: is concerned with understanding the personal resources available by examining net worth and household cash flow. Net worth is a person's balance sheet, calculated by adding up all assets under that person's control, minus all liabilities of the household, at one point in time. Household cash flow totals up all the expected sources of income within a year, minus all expected expenses within the same year. From this analysis, the financial planner can determine to what degree and in what time the personal goals can be accomp ...
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