Very often we have come across the word ‘Personal Finance’ in our life and get a vague idea that it is something related to Finance.
So what exactly is Personal Finance?
Personal Finance is defined as the management of money and financial decisions for a person or family including budgeting, investments, retirement planning and investments. It is the way of managing your finance effectively. Personal finance encompasses everything about the way you manage your money.
It is all about financial management wherein a person handles his finances by taking into account his budget and savings of the present to save resources for the future.
Personal finance takes into account your income, expenses, living requirements, individual goals, and desires and coming up with a plan to fulfil those needs within your financial constraints. But to make the most of your income and savings it’s important to become financially literate, so that you can distinguish between good and bad advice and make savvy decisions. It not only impacts your life today but also has far-reaching impacts on your future.
Example of Personal Finance
An example of personal finance is knowing how to budget, balance a chequebook, obtain funds for major purchases, save for retirement, plan for taxes, purchase insurance and make investments. Personal finance is if you sit down with your spouse and plan out your spendings and discuss your investment and saving plans.
Aspects of Personal Finance
- Saving – How we save our money.
- Investing – How we make our money grow.
- Earning – How we make more money.
- Spending – How we use our money to purchase things.
- Protection – How we plan against the unforeseen and adverse event.