What is personal finance?

personal finance

Managing your money as well as saving and investing is called personal finance. Budgeting, banking, insurance, mortgages, investments, retirement planning, tax and estate planning are the main supports of finance, but the key factors of personal finance are:

1. income

2. Spending

3. Saving

4. Investing

5. protection

1. Income

It refers to a source of cash that an individual receives for his work and then uses to support themselves and their family. It is the starting point for the financial planning process.

 The common sources of income are:

•         Salaries (Amount of money received monthly for work done)

•         Bonuses (The amount of money added to a person’s wages as a reward, in addition to good performance)

•         Hourly wages ( The Amount received for hourly work.

•         Pensions (A regular payment made by the state to people of as well as above the official retirement age.)

•         Dividends (It refers to a reward, cash or otherwise, that a company gives to its shareholders. It is issue in various forms, such as cash payment, stocks or any other form)

These are the sources of income that generate cash that is individuals. They can be used to either spend, save, or invest. According to this, income can be thought of as the first step in our personal finance.

2. Spending

 The second main factor is spending because It includes all types of expenses that an individual incurs related to buying goods and services or anything that is consumable. It does not include investments. All this spending falls into two categories:

1.Cash = Paid for with cash on hand, similarly giving money hand to hand.

2. Credit = Paid for by borrowing money.

As per the surveys, the majority of most people’s income is allocated to spending, likewise on common sources.

Sources of spending are:

•         Rent

•         Food

•         Taxes

•         Entertainment

•         Traves

•         Mortgage payments

•         Credit card payments

The expenses listed above all reduce the amount of cash which an individual earn and The left out of earnings is made as saving and investing. If expenses are greater than income, then the individual has a deficit. Managing expenses is very important just as generating income. Typically people have more control over their discretionary expenses than their income. Good spending habits are critical for good personal finance management in the future last.

#3 Saving

It refers to excess cash that is retained for future investment or for emergency spending. In other words, the money which is kept aside without spending is called saving. It provides us with financial independence and debt-free living, and They are used for unforeseen expenses, especially for medical emergencies.

Some common forms of savings include:

•         Physical cash

•         Savings bank account

•         Checking bank account, in fact analysing it.

•         Money market securities

Most people keep at least some savings aside to manage their cash flow. Having too much savings is actually a bad thing, but By not saving a lot of money invest a lot of money which earns us many profits.

#4 Investing

Investing means putting saved money into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit, but investing also has risk. It is the process of buying assets that increase in value over time and provide returns and profits, especially in the form of income payments or capital gains. It is about spending money to improve your own life. The purchase of assets that are expect to generate a rate of return, over time is related to investment. In this process, the individual will receive back more money than they originally invested.

Common forms of investing include:

•         Stocks

•         Bonds

•         cryptocurrencies

•         Real estate

•         Private companies

•         Commodities

•         mutual funds.

There are vast differences in risk and reward between different investments, and most people seek help with this area of their financial plan especially in investing.

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#5 Protection

It refers to insurance and planning. A wide range of products that can be used to guard against unforeseen and adverse events are especially known as protection.

Protection products include:

•         Life insurance

•         Health insurance

•         Estate planning

Personal finance is important for everyone you can improve that by managing your money through budgeting, spending and savings. It includes long-term planning and investing that considers potential financial risks, investments are risky but they generate a good profit.

Methods of personal budgeting are:

1. Income generation.
2. Budgeting.
3. Banking.
4. Insurance.
5. Loans and mortgages.
6. Investments.
7. Retirement planning.
8. Tax, and estate planning.