What is Personal Finance?
Personal finance is the process of planning and managing personal financial activities such as income generation, spending, saving, investing, and protection. The process of managing one’s personal finances can be summarized in a budget or financial plan. This guide will analyze the most common and important aspects of individual financial management.
Areas of Personal Finance
In this guide, we are going to focus on breaking down the most important areas of personal finance and explore each of them in more detail so you have a comprehensive understanding of the topic.As shown below, the main areas of personal finance are income, spending, saving, investing, and protection. Each of these areas will be examined in more detail below.
The Personal Finance Planning Process
Good financial management comes down to having a solid plan and sticking to it. All of the above areas of personal finance can be wrapped into a budget or a formal financial plan.These plans are commonly prepared by personal bankers and investment advisors who work with their clients to understand their needs and goals and develop an appropriate course of action.Generally speaking, the main components of the financial planning process are:
Preparing a budget or a financial plan is critical for giving you the best shot at achieving your personal and family goals. Below is an example of a simple monthly budget that could be used to manage your income, expenses, savings, and investments.
As you can see in the example below, there are three potential sources of income (salary, bonus, and other), followed by a list of expenses (rent, food, groceries, restaurants, entertainment, childcare costs, vacations, etc.), and the difference between the two is the person’s monthly surplus or deficit.
Mon Dec 12, 2022