Personal Finance is defined as the management of money and financial decisions for a person or family including budgeting, income generation, investing, spending, saving, retirement planning and investments.
We will be focusing on explaining the most important areas of personal finance. The most important areas are;
- Budgeting: This is a process of creating a plan to spend your money. Budgeting ensures that you have enough cash for the things that are important to you and the things that you need.
Having a budget and following it will keep you out of debt. And if you are in debt already, this will help you work your way out of it. The good thing about budgeting is, when you know where your money is going, you can crush your money goals faster.
- Income: This is the money that an individual or business receives in exchange for providing a good or service or through investing capital.
It is the starting point for our financial planning process and there are several sources of income that generate cash that individuals or businesses can use to either save, invest, or spend. Some of which are; salaries, wages, pensions, bonuses, dividends.
- Investing: In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit. Though investing carries risk but having the mind to invest makes you stay ahead of inflation, helps you build wealth etc.
- Spending: This is the money that is used for a particular purpose. You either by cash or by credit. Managing expenses is just as important as generating income. If expenses are greater than income, then an individual has a deficit. Good spending habits are critical for good personal finance management.
- Savings: This refers to the money put aside for future use rather spending it immediately. Managing savings is a critical area of personal finance. If there is a surplus between what a person earns as income and what they spend, the difference can be directed towards savings or investments. Savings helps you in emergencies, limits debts, gives you financial freedom, etc.
Good financial management comes down to having a solid plan and sticking to it
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