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The Basics of Accounting and Personal Finance

In today’s financial climate, personal fiscal responsibility is more important than ever. Knowing how much money you have, the liquidity of your assets and being able to successfully manage you assets is essential. However, it seems that these are not skills that our educational institutions place much value upon. While math and science courses are staples and graduation requirements in our high school curricula, arguably more applicable personal finance courses are not. Perhaps that is why many students are feeling increasingly unprepared to make the crucial financial decisions that they face upon graduation. A key aspect of understanding personal finance is comprehending the basics of accounting. Therefore, it is my opinion that at least one basic accounting course should be a requirement for all high school students. Below I will briefly outline several basic concepts that should help give interested readers an overview of accounting.

The most fundamental tenet of accounting is the concept of debits and credits. Every company (or individual) tracks their flow of assets and liabilities through the use of debits and credits. When cash is involved in a transaction, a basic rule of thumb applies. If the amount of cash on hand is increasing, then the cash account is “debited.” Likewise, if the amount of cash on hand is decreasing, the cash account is “credited.” It is that simple. The concept of a “journal entry,” is also essential in understanding the mechanics of debits and credits. Simply put, whenever a transaction takes place, a corresponding journal entry, or written record of the transaction must be completed. Journal entries spell out in prose which account is being debited and which is being credited. To further illustrate this concept, consider the following example:

A business (Company D), purchases 20 tickets to a local sporting event at $10 each for a grand total of $200. Therefore Company D has spent $200 of its cash on hand. Company D’s “Cash” account would be credited for $200. Likewise, one of Company Ds “Expense” accounts would be debited for $200. A corresponding journal entry would be written to notate this. While this example has been greatly simplified, the conceptual aspect is sound.

Keeping track of your personal finances may only require a few entries per month, depending on the number of significant financial transactions you perform. However, businesses are in a much different scenario. Due to the scope of their operations and the sheer number of different accounts they maintain, it is vital they organize their transactions in an easy-to-view format. The format of choice is a “T-account.” A t-account looks just as its name may indicate – a “T.” The name of the account serves as a header while debits occupy the left side of the “T” and credits occupy the right. This allows auditors as well as company accountants to quickly find transactions and follow the flow of money throughout the company. For every account that a company maintains, a corresponding t-account is created.

These t-accounts are then grouped into three major categories; “assets,” “liabilities,” and “stock holders’ equity.” These categories make up a fundamental equation that all accountants must know; ASSETS = LIABILITIES + STOCK HOLDERS’ EQUITY. Accounts that are grouped under the “assets” label include cash, accounts receivable and equipment. Accounts payable, accrued expenses and wages payable are some of the “liability” accounts, while retained earnings and capital stock are the main “equity” accounts.

The final piece of the accounting puzzle for a company is the preparation of financial statements. These statements are made up of every account and calculation that has been previously mentioned. A balance sheet is specifically comprised of the “assets = liabilities + equity” equation. An income statement contains information regarding the revenues and expenses of a company. In short, every financial statement builds on the data contained in the previous one, just like accounts and journal entries are derived from each other. If you are looking for visual examples of these statements, I highly recommend searching for them with “Google Images.” While perhaps an obvious answer, a visual aid is often crucial in truly comprehending a subject.

Personal Finance & Personal Investing Tips

Once you have your personal finance house in order another area of finance, personal investing, looms as a challenge. How do you finance major goals like retirement? Personal investing is the answer, so here are some investing tips to help you avoid disaster.

Get your personal finance foundation on firm ground before rushing into personal investing in a big way. Poor credit and money management can force you into bankruptcy even if you have considerable assets. Scenario: You pay $1,000,000 for a house putting next to nothing down in 2006. The only real money you’ve saved has been in your 401k at work, which is 100% invested in stock funds and company stock. A few years later you lose your job as your employer falls upon bad times, the stock market falls like a rock, and your house is worth $700,000 if you’re lucky. Sound familiar?

If you can’t pay your bills you are technically insolvent. In the above case you go broke and end up with a lousy credit rating at the same time. The truth is that millions of Americans have invested in real estate they couldn’t afford and stocks investments they didn’t understand; and many paid dearly for their financial mistakes. Concentrate on personal finance first: your insurance needs, credit management, and a cash reserve to cover financial emergencies should be your first concern. The truth is that as long as you can stay current on your bills and you have an excellent credit rating, you’re still alive financially. Any weakness in the above personal finance areas makes you vulnerable to financial disaster.

Personal investing is the area of finance that puzzles many people, even some who are well off financially. After all, most folks work for a living and have no financial education, especially in the investment and investing arena. Stocks and bonds are not that difficult to understand, but without any financial education or background, they may as well be a foreign language. The best investment tip I can give an inexperienced or new investor is to start investing with mutual funds. These funds were designed for the investing public. They offer diversification and professional management at a reasonable cost. You can invest large or smaller amounts and have access to your money on any business day.

Now for some mutual fund investing tips. Different funds have different financial objectives, risks, and cost structures. Get your feet wet with the safest funds, money market funds. They pay interest in the form of dividends, their share price does not fluctuate, and the cost of investing is usually low. If you need some or all of your money back there is little chance of taking a loss. Once you have some money accumulated there start small in stock funds if you are younger, and bond funds if you are closer to or in retirement. Bond funds pay higher income in the form of dividends with moderate investment risk, while stock funds feature higher profit potential along with higher risk.

Mutual funds do the investment management for you. Your job is to pick the fund(s) that have the same financial objective(s) you do. The best funds in terms of the cost of investing are called no-load funds. They have no sales charges or commissions, and your total cost to invest can be less than 1% a year. If you’re ready to get into personal investing, look no further than mutual funds… the new investor’s best friend in my opinion.

Effective and Relevant Personal Finance Methods

Personal finance management when utilized correctly can go a very considerable way towards streamlining the financial situation of people, by ensuring that they reduce wastage of their money and also increases their financial status as well. One of the best aspects of personal finance management is that when used in the right manner, you will be able to achieve all of your consumer dreams and so the latest clothes and jewelry can all be yours.

The cornerstone of a secure and happy financial status is careful planning and discipline and if you can manage to devise a personal finance management scheme and stick to it religiously, then you cannot go wrong. Of course, this is only part of the puzzle and there is a number of other issues you will need to achieve for a final result. You need to ensure that a chart of all of your income, with relevant deductions for your expenses is carried out. Separate need from want, and try and scale down the want column where and when possible.

As important as it is that you carefully devise your personal finance management system, it is even more essential that you actually put the ideas into practice and that you actually follow the deadlines and rules you set for yourself. Doing so will make sure you do not lose your focus and worse yet, fall into bad habits.

People are often concerned with using a finance plan as they are worried about the expected cost that one of these will set them back by. In reality, anyone (even you!) can make such a plan, after all, who on this earth is more intimately aware of your financial situation than you? If you are really struggling to get a decent personal finance management system up and running, you can always hire a professional to do the grunt work for you. Just remember, this will cost you money, so be prepared for that.

Four Easy Personal Finance Expense Categories

Having easy finance expense categories can make it a LOT easier for you to stick with your personal budgeting commitment long-term. You know how it is when you try to put together a budgeting system, but you have 37 expense categories to look after. Who can live their life that way on a consistent basis without deviating from the system? It is almost impossible, and that is why the four bucket system keeps it simple when it comes to managing your expense categories.

Introducing the Four Bucket Personal Finance System

When you think about it, there are only a few major categories when it comes to budgeting: living expenses, investing, reserve spending and gift giving. Everything fits into one of these four categories or “buckets,” and so keeping these as your expense categories will make it much easier for you to stick with your commitment. How do you get started in using the four bucket personal finance system?

Start With Your Priorities

The first step to using the four bucket system is arranging the four categories according to your personal money management principles. For example, placing them in this order has proven to be very effective for people who want to build personal wealth:

1. “Pay Yourself First” (accumulating capital to create new wealth)

2. Living expenses

3. Contributions (includes charitable giving)

4. Reserve (building an emergency and special purchase fund)

This is backwards to the way that the majority of people manage their personal finance expense categories. Most people start out by paying their living expenses and investing what is left over…this is a surefire way to make sure that you never start investing.

There is an old saying that goes: “Poor people are poor because they spend their money and invest what’s left. Rich people are rich because they invest their money first and then spend what’s left.”

If you apply this principle in using the four bucket personal finance system, you will never miss the invested money. You will adapt to pay your living expenses without it, and this will put you on the road to building wealth and financial security.

So sit down with these four personal finance expense categories and apply the four bucket personal finance system to managing your income and outgo. For best results, put “Pay Yourself First” and start making your wealth building and financial security the number one priority.

Learning How to Manage Your Debt Negotiation

Since we live in a credit culture, we have to reside in a debt culture too. And in case you use credit to buy, then it only means that you are in debt. But simple debt is not a problem, its excess debt. Not being able to manage your debt is an extension of not being able to manage your personal finances. It can lead to many health as well as marital difficulties. It’s important to learn how to control your debt, and in case it is already out of control, what to do to survive the situation.

Consumers are generally unaware of their risks with their unpaid debts. A creditor can sue you in court and if he is able to win a judgment, the creditor can take your garnish your wages or come & get your property. But usually this does not happen. It is too much of an effort for them to take any kind of action against you. What usually happens is that your creditor will go to a junk debt buyer who will buy and sell debts and then place them into million dollar packages. These packages sell on Wall Street, very much like a secondary mortgage market.

At times, consumers may feel intimidated by their debts which are overwhelming. They feel that they can do nothing other than file a bankruptcy. Consumers believe that collection agencies will come & seize their property. But for these actions to take place, the creditor needs to first go to court. Due to this lack of information, many consumers turn quite prematurely to bankruptcy. Bankruptcy should never be used until all the options have been exhausted, as well as the settlement procedures. You can get out of your debts by settling or by filing a bankruptcy. You may even try debt validation.

Before you try to settle a debt, do check the statute of limitations first. Remember that collectors are bound by a certain amount of time in which they can sue you for payments. So determine if the statute of limitations which is there for collecting a debt in your state is still there or it has past. In case your debt is older than the existing statute of limitations, the original creditor or the assigned collection agency cannot take you to the court to get a judgment.

After seven years, a negative mark and the related collections will disappear from your credit report. If any debt has gone unpaid for 7 years, then it cannot remain on your credit report. You can always challenge this listing on your credit report and it will have to come off. The amount of time any late payment can remain on your credit report is irrespective of the statute of limitations.

Creating an Effective Personal Finance Budget

A personal finance software is the most progressive solution that you can get with your limited or extended cash options. The easiest to use personal finance software with which you can manage your personal finances is Desktop Budget. You can create your own customized financial budget using this new accounting software. You can record the monthly as well as annual income and expenditures to keep you focused on your expenses. This will enable you to be on guard against spending outside your means. Be it your retirement plans or your expenses on your children’s education personal budgeting will keep you in sync with your resources.

It helps you to analyze your spending and savings habits. You will also be informed of the latest currency exchange rates. As these types of budgeting offers calculators you can calculate the loan amount without depending on others. It offers a tabular representation which makes it easy to process and calculate future payments. Your day to day financial activities are recorded for future references. A Personal finance manager alone can guide you through this imbroglio.

This will help you to stay off from indulging in unwanted expenses. Its effective personal debt management keeps track of your expenses and guards you against falling into debt trap. It will also introduce you to many insurance policies and funds that will enable you to save for a rainy day. A personal finance software is a reliable tool and is like a good friend who will warn you of lurking danger. Your life will be secured if you give the reins to the personal finance manager.

Expenses are numerous and it needs the ingenuity of a useful tool to track down. Expenses like house help, grocery, medical help, laundry, basic amenities, phone, mobile, transportation that contribute to the household expenses and the Lifestyle expenses include expenses on newspaper, clothing, entertainment books, personal care, eating out, travel, holiday, and club or gym membership all get incorporated in personal finance.

Managing Your Money Effectively

Life is what we make it, or so they say. But at times when the going gets tough and nothing comes your way; this aphorism holds no good. Sort of a way-out that could drag you out of the predicament: seek the help of a personal finance manager. Make most of the life by catching hold of the opportunities that come your way for they may come only once. Avail software solutions to quash the grievances that sweep you off your feet.

Accounting software is easy to procure and spares you from the doldrums associated with spendthrift habits. The facility acts a redeemer and can save you from utter disaster. Personal finance incorporates along with spending, your savings account, investments, insurance, funds and so on. However much one may earn, still no one can escape the anguish of life that present day life style presents. As the prices soar high so the miseries too….. Many companies grant you credit funds, but the problem is that you become a doubting Thomas as you are not aware of the pitfalls of these offers.

If you use a personal finance software to understand the intricacies of the offers you will reap its benefits. You can manage your personal finances using Desktop Budget.Investing in profitable ventures is the best way to avoid taxation. But how to verify the credibility of the offered plans…? A personal finance manager initiates you into the scheme tailor made for you. If you are confused over selecting the best plan this tool will help you in taking the right decision. It is a renowned financial management application designed to serve you.

Financial investment portfolios are tracked down more easily by using this software. Customized budget categories are defined by it. It keeps a record of transactions both income and expenses and inform you how much would be allocated for each category of activity beforehand to look into it while spending.