Personal finance is the financial management which an individual or a family unit performs to budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.
Personal finance is a term that covers managing your money as well as saving and investing. It encompasses budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and estate planning.
Components of personal finance
An example of personal finance is knowing how to budget, balance a check book, obtain funds for major purchases, save for retirement, plan for taxes, purchase insurance and make investments.
Personal finance is a vital part of not only managing your day-to-day financial needs but also planning your financial future. The sooner you get a grip on personal finance, the better your long-term financial prospects will be for things like investing or planning for retirement.
Principles of Personal Finance
One of the most important (and obvious) aspects of personal finance is cash flow management. This is all about how much money is going in, and where that money goes. Getting your cash flow under control is vital before you can do anything else with your money.
Set long-term goals like getting out of debt, buying a home, or retiring early. These goals are separate from your short-term goals such as saving for a nice date night. Set short-term goals, like following a budget, decreasing your spending, paying down, or not using your credit cards.