Personal finance is all about how individuals and households, rather than companies or organizations manage their income, spending, savings and investments. It is the financial management on how much to spend, budget, save, invest, plan for retirement, and other future events. Personal finance may also refer to the whole field from a person’s point of view, or that of the sector that provides people and their families with financial services.
What are the main areas of personal finance?
- This is the money we receive or earn and then use to buy things, support our loved ones, pay bills, save and invest. Salaries, hourly wages, commissions, pensions, gifts, dividends, government payouts, and bonuses are examples of some sources of income. In order to survive in today’s competitive world, at least one person in a household must have an income.
- Budgeting (Spending). This is the opposite of income. It is also termed as an expenditure. It is the money that leaves us. Examples include shopping, paying bills, eating out, making charity donations, paying rent, etc.
- If your income is greater than your spending, you have a surplus. This is money you can save. Economist sometimes refer to savings as deferred consumption. There are many ways to save money. If you don’t like banks, you could keep the money in cash. Most people have a savings bank account.
- If you’re not happy with the interest you earn on your savings account, you should consider investing. You could purchase some assets such as stocks (Shares) and hope that you will eventually get a better return than you would elsewhere. Apart from stocks, you might also consider investing in real estate, mutual funds, bonds or commodities. If you have plenty of money, you can even invest in somebody’s start up business.
- Protection in this context, refers to guarding against adverse or unexpected events and protecting the financial interests of yourself and your loved ones. Examples include insurance. It will protect you should anything happen.
For many people, trying to secure their lives financially may feel like an overwhelming or daunting task. One that requires a level of expertise that they do not have. There are many personal finance advisors who could help you get started. Make sure that however you choose is a well-qualified, honest and reliable person.