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1 Running Head: PERSONAL FINANCIAL PLAN Personal Financial Plan Author Course Instructor Institution
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2 Introduction Personal financial analysis is the process in which a person identifies their strength and weaknesses in the way they use their money [Far14]. This is a very crucial activity that everybody should do regardless of whether they earn a salary every month or not. As long as a person gets any amount of money, they should be able to account on how they have used it. This helps build accountability and ensures that money is used constructively. With my personal finances, I work with a principle that do not wait until you earn a lot of money so as to start accounting for them. Accountability starts from the smallest penny. I have identified two ways to analyze my personal financial situation. These are two financial statements that I employ, which are cash flow and balance sheet and the second method is using online means. Financial statements 1. Personal Cash Flow Statement This is a financial statement that records and measures the amount of cash inflows and outflows so that at the end of the month you can calculate the total amount of the cash flow. The revenue that contribute the cash inflow include the monthly salary, interest from the savings in the various saving accounts, there are also dividends that come from various investments and at times capital inflows from the sale of property and financial securities such as personal assets. There are also small inflows which come from merry-go-rounds and groups which I participate in. on the other hand, cash outflows represent every other expense that you incur regardless of the amount you use. For instance, the rent that you pay, the money for bills, for buying groceries, for gas/electricity, telephone bill and for entertainment. This is important because I get to
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3 compare the monthly inflows and outflows which enable me to determine how I have used my finances, whether to increase the usage or to cut down on them. 2. Personal Balance Sheet financial statement Personal Balance Sheet financial statement is a statement that shows all my financial worth at a specific pint in time. Usually it has all my assets and liabilities which when a difference is obtained from them results in the net worth. In this statement, there are assets which can be easily converted into cash anytime. There are also large assets which may include cars and furniture. These ones are a bit difficult to convert into cash because of their nature. For someone to but a type of furniture, there are lots of things they consider before settling for it. Similarly, there are liabilities which is the money that I owe companies, groceries, friends and any other person with whom I have their debt. I have learnt to cut down on liabilities as much as possible because paying for a debt is not as sweet as such.
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