Question

How are the concepts of PV and FV important when we talk about your personal financial management of money? What is the importance of creating a budget? How can you make changes in your personal routine in order to stick to a budget—what challenges might you face?

300 words , answer each part

Answer 1

PV and FV are often overlooked when it comes to personal financial management of money. They are important concepts which every common person should be aware about. Its a fact that these concepts are exercised by even an average individual, whether they realize it or not when it comes to his personal investment options.

PV (present value) and FV (future value) are simply time value of money. Future value indicates the future value of the money you have in your pocket right now. Present value is the current value of any future cash inflows that you expect. These are important factors when any person decides about personal financial management. These help to evaluate various investment options and choose the most beneficial one for the investor.

Creating a budget is just as important as making a plan. Any financial plan comes into practice only through a well drafted budget. A budget helps to monitor the financial system and management of money in the best possible way by paving way to the desired outcome or savings of an individual.

While enforcing a budget plan there might need changes to one's personal routine. Any expenditures that are found to be not necessary may be cut down or replaced with more economical options. Finding replacements or economical options that serves the need just as before is the best way to stick to a budget. Making changes to personal routine to stick to a budget might require the individual to do things that he/she may not be used to. For example, expenditure on conveyance may be cut down if the individual shifts to usage of public transport which also reduces the comfort of commuting. The person may have to walk a few miles to catch a train where as he could commute by car right from his doorstep earlier.