June 23, 2022

Just What IS Personal Finance? Everything You Need to Know

Valerie Mellema
Fortune 500 Editorial Contributor

Personal finance is an umbrella term that covers many areas of finances, bills, income, and other matters involving money and assets. Put simply, it’s how each person handles, spends, saves, and earns money. Of course, there’s more to it than that. A solid plan for managing your personal finances and helping you create a stable future is essential. Otherwise, it’s unlikely that you’ll be able to manage money well. 

Some people who didn’t get the proper education on personal finance end up getting into huge financial entanglements, which can cause a lot of stress and even lead to more serious issues. Understanding this topic starts with educating yourself. 

What Is Personal Finance, Exactly?

As the name implies, personal finance refers to any financial matters related to your personal situation with money. It could include saving, investing, budgeting, banking, investments and retirement planning, insurance and mortgages, estate planning, and tax planning. Essentially, it’s a term used to encompass the entire industry that is designed to provide financial services to people and their households. 

Personal finance topics and plans are all about meeting your personal financial goals. That could be having enough to retire, meeting your savings plan for college for your kids, or even planning for your own retirement. Your income, expenses, living arrangements, and individual desires also impact your personal financial decisions and moves. 

The best thing that you can do for your finances is to take the time to learn all about financial matters so that you can be well-educated on the topic to make decisions that are in the best interests of your financial situation and needs. 

Some Common Personal Finance Tools and Strategies

There are best practices for personal finance and budgeting that you should be aware of so that you can set yourself up for success. For starters, making a budget and learning how to stick to it will ensure that you get all the opportunities to save that you possibly can and that you’re allocating your expenses properly. Experts recommend the 50/30/20 rule:

  • 50% of your net income for living expenses and bills 
  • 30% of your net income goes toward entertainment, clothing, donations, etc. 
  • 20% of your net income is for the future—saving for retirement, paying off debt, etc. 

This is a simple formula that all kinds of people use to plan their own budgets and manage their personal financial needs. You’ll also want to focus on taking the time to improve your spending habits. That can include things like:

  • Creating an emergency savings fund
  • Limiting your debt 
  • Using credit and credit cards wisely
  • Monitoring your credit score
  • Addressing financial issues as soon as they arise
  • Paying off your student loans
  • Considering your family in financial decisions
  • Maximize tax breaks and financial perks 

Personal Finance Starts with Principles

Of course, no matter how you spend or what kind of budget you have in mind, you need to develop strong principles about money and finances. You need to learn the principles of money management and investing, as well as retirement savings, and more. Another important thing to learn is how to set the priority order with your financial plans and assess the needs of your personal finances so that you can make the right moves and set the right goals. 

Restraint is another principle of personal finance that you need to master. Restraint means that while you may have the ability to splurge or means to spend more, you’re taking the time to be conservative and live within your means. After all, it does no good for you to earn $55,000 per year when you’re spending as much as $100,000 or more in the same amount of time. 

It’s About Education and It’s About Time

Ultimately, the world of personal finance is all about getting educated and taking the time to explore all of the resources and options out there for personal financial gain and growth. Taking the time to learn about this topic is half the battle. With the information provided, it should be much easier for you to understand how you can harness the power of your own personal finances for the greater good of your future and your life now. Check out blogs, free online courses and content, and even your local library, to learn more about managing and succeeding with personal finance. 

Outside of the classroom, you’ll also need to learn valuable soft skills like a sense of timing, dedicated responsibility, discipline about spending and saving, and the ability to remain emotionally detached from the situation so that your feelings aren’t influencing your finances—that’s never a good combination. Keep these things in mind and take your personal finances to a whole new level with the help of online resources and tools that can change the way that you manage your money. 

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