Economic Freedom
True individual freedom cannot exist without economic security and independence.
Theodore Roosevelt
“I think that nothing is so important for freedom as recognizing in the law each individual’s natural right to property, and giving individuals a sense that they own something that they’re responsible for, that they have control over, and that they can dispose of.”
― Milton Friedman
There can be no liberty unless there is economic liberty. Margaret Thatcher
According to Adam Smith, the expectation of profit from "improving one's stock of capital" rests on private property rights. It is an assumption central to capitalism that property rights encourage their holders to develop the property, generate wealth, and efficiently allocate resources based on the operation of markets. From this has evolved the modern conception of property as a right enforced by positive law, in the expectation that this will produce more wealth and better standards of living
Capitalism is an economic system that is based on private ownership of the means of production and the production of goods or services for profit.(1)Other elements central to capitalism include capital accumulation and often competitive markets.(2)
Capitalism is defined as a social and economic system where capital assets are mainly owned and controlled by private persons, where labor is purchased for money wages, capital gains accrue to private owners
Free-market capitalism refers to an economic system where prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy. It typically entails support for highly-competitive markets, private ownership of productive enterprises. laissez-faire is a more extensive form of free-market capitalism where the role of the state is limited to protecting property rights.
- [1] Chris Jenks. Core Sociological Dichotomies. London, England, UK; Thousand Oaks, California, USA; New Delhi, India: SAGE. Pp. 383.
- [2[ Heilbroner, Robert L. "capitalism." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 29 August 2012 <http://www.dictionaryofeconomics.com/article?id=pde2008_C000053> doi:10.1057/9780230226203.0198
Assets In financial accounting are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset).
- [1] "Personal property". Sir Robert Harry Inglis Palgrave. Dictionary of political economy, Volume 3. 1908. p. 96
- [2] Origin of chattel, accessed August 15, 2009
real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, etc. Real property and personal property are the two main sub-units of property in English Common Law.
In countries with personal ownership of real property,
civil law protects the status of real property in real-estate markets, where licensed agents,
realtors, work in the market of buying and selling real estate.
Each U.S. State has its own laws governing real property and the estates therein, grounded in the common law. Real property is generally defined as land and the things permanently attached to the land. Things that are permanently attached to the land, which also can be referred to as improvements, include homes, garages, and buildings.
Identification of real property
To be of any value a claim to any property must be accompanied by a verifiable and legal
property description. Such a description usually makes use of natural or man made boundaries such as seacoasts, rivers, streams, the crests of ridges,
lake shores,
highways,
roads, and
railroad tracks, and/or purpose-built
artificial markers such as
cairns,
surveyor's posts,
fences, official government surveying marks (such as ones affixed by the
U.S. Geodetic Survey ( U.S,G.S,), and so forth.
Estates and ownership interests defined
The law recognizes different sorts of interests, called
estates, in real property. The type of estate is generally determined by the language of the
deed,
lease,
bill of sale,
will,
land grant, etc., through which the estate was acquired. Estates are distinguished by the varying
property rights that vest in each, and that determine the duration and transferability of the various estates. A party enjoying an estate is called a "tenant."
Real estate is "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; (also) an item of real property; (more generally) buildings or housing in general. Also: the business of real estate; the profession of buying, selling, or renting land, buildings or housing."[1]
In the laws of the United States of America, the 'real' in 'real estate' means relating to a thing (res/'rei', thing, from O.Fr. 'reel', from L.L. 'realis' 'actual', from Latin. 'res', 'matter, thing'),[3] as distinguished from a person. Thus the law broadly distinguishes between 'real' property (land and anything affixed to it) and 'personal' property or chattels (everything else, e.g., clothing, furniture, money). The conceptual difference was between 'immovable property', which would transfer title along with the land, and 'movable property', which a person could lawfully take and would retain title to on disposal of the land.
[1]"Real estate": Oxford English Dictionary online: Retrieved September 18, 2011
[3] "Real" – Online Etymological Dictionary Retrieved July 12, 2008
Personal finance refers to the
financial decisions which an individual or a family unit is required to make to
obtain,
budget,
save, and spend monetary resources over time, taking into account various
financial risks and future life events.
When planning personal finances the individual would consider the suitability
to his or her needs of a range of banking products (
checking,
savings
accounts,
credit cards
and consumer
loans)
or investment (
stock market,
bonds,
mutual funds)
and insurance (
life insurance,
health
insurance,
disability
insurance) products or participation and monitoring of individual-
or employer-sponsored
retirement
plans, social
security benefits, and
income tax
management.
Personal financial planning process
A key component of personal finance is financial planning,
which is a dynamic process that requires regular monitoring and reevaluation.
In general, it involves five steps:
1.
Assessment: A person's
financial situation is assessed by compiling simplified versions of financial
statements including
balance sheets
and
income
statements. A personal balance sheet lists the values of personal
assets (e.g., car, house,
clothes, stocks, bank account), along with personal
liabilities
(e.g., credit card debt, bank loan, mortgage). A personal
income
statement lists personal
income and
expenses.
2.
Goal setting: Having
multiple goals is common, including a mix of short term and long term goals.
For example, a long-term goal would be to "retire at age 65 with a
personal net worth of $1,000,000," while a short-term goal would be to
"save up for a new computer in the next month." Setting financial
goals helps to direct financial planning. Goal setting is done with an
objective to meet certain financial requirements.
3.
Creating a plan: The financial
plan details how to accomplish the goals. It could include, for example,
reducing unnecessary expenses, increasing the employment income, or investing
in the stock market.
4.
Execution: Execution of
a financial plan often requires discipline and perseverance. Many people obtain
assistance from professionals such as
accountants,
financial
planners,
investment
advisers, and
lawyers.
5.
Monitoring and reassessment:
As time passes, the financial plan must be monitored for possible adjustments
or reassessments.
Typical goals most adults and young adults have are paying
off credit card and/or student loan debt, investing for retirement, investing
for college costs for children, paying medical expenses, and planning for
passing on their property to their heirs (which is known as
estate
planning).
Areas of focus
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.
2.
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.
3.
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 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.
4.
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. 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, 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.
5.
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.
6.
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 your death. Avoiding these taxes means that more of your assets
will be distributed to your heirs. You can leave your assets to family, friends
or charitable groups.
"Financial
Planning Curriculum Framework". Financial Planning Standards
Board. 2011. . Retrieved 7 April 2012.