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Chapter 1, Problem 1PA


Personal Finance (8th Edition) (Wh...

8th Edition
Arthur J. Keown
ISBN: 9780134730363



Personal Finance (8th Edition) (Wh...

8th Edition
Arthur J. Keown
ISBN: 9780134730363
Summary Introduction

To discuss:

Financial strategies one should develop and financial problems one must avoid.


Financial strategies refer to the way through which a family or a person achieves their future financial security. Financial security refers to the situation where a person has enough money to provide himself and his own family the basic necessities of life.


The following financial strategies should be adopted for sound financial planning:

  • Minimize your taxes:

    One of the financial strategies is to reduce taxes through legal way. It means learning about tax system so that one can manage his/her portfolio in a way that he /she need not to pay high taxes.

  • Invest wisely:

    It means that one should invest wisely while keeping in his minds his goals and be careful about the shady investment that are available outside in the world.

  • Save for retirement:

    One may not think much about their retirement right now but it is essential to cover your retirement because nobody wants to leave their old age with no money in the hand. So, one must consider about their retirement during their financial planning.

  • Protect your asset:

    A good financial plan is that which protect your current asset as well. So, one should take adequate insurance at low cost to protect their assets.

  • Aggregate wealth for special expenses:

    A good financial planner is that who keeps in mind the special expense that if not planned successfully can erode their wealth completely. Special expenses are marriage expense and college fees, etc.

  • Plan for uncertainty:

    It may sound funny that how one can plan for an event that he even does not know will exist but one should keep in mind the future uncertainties and plan some extra wealth for that uncertain event. Uncertain event can be accident of a person. Uncertain event can be an event which could reduce family income sharply and increase their expense sharply.

The mistakes one should avoid are:

  • The mistakes that person can make is that he/she does not consider about tax and end up paying more tax than required.
  • Spend more than what they need to end up having no money for their investments.
  • It may happen that whatever amount of insurance a person takes is not sufficient enough for that purpose.
  • Not thinking about the future contingencies.

One should keep in mind, things like future requirement, contingencies and obligation and other things while planning financially and avoid doing things like planning according to taxes, splurge and insufficient insurance and many more.

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