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What is personal finance?

Written byKoyo Loans
Last Updated26th October 2022
Contents
  • In 30 seconds…
  • Introduction 
  • What is personal finance?
  • What are the key components of personal finance?
  • Why is personal finance important?
  • How to keep track of your personal finances?
  • Conclusion

In 30 seconds…

Personal finance encompasses managing, saving, and investing your money. It includes the likes of income, taxes, insurance, loans, debt, expenses, savings, retirement, and investments, among others. It’s crucial because personal finance influences all aspects of your life and determines your personal goals. Budgeting and keeping track of your personal finances is an excellent way of retaining control over your wealth and will help you in the long run. Neglecting any aspects of your personal finances can result in difficulties for you and your family, so it’s vital to plan ahead and remain financially literate.

Introduction 

Getting your personal finances in order is vital if you hope to meet your financial goals and objectives. However, there’s a lot to think about as far as personal finance is concerned, as there are various aspects that fall under its remit. Below, we explain what personal finance is and why it’s important, and look at some of the key components of your financial health that you can work towards improving.

What is personal finance?

Personal finance is a broad term that refers to managing, saving, and investing your money. It includes everything from personal budgeting to applying for a mortgage and encompasses a broad range of financial services more generally. 

Setting and working toward individual personal finance goals is an excellent way of managing your life and gives you the best possible chance of remaining financially solvent. Whether it’s short-term financial planning or putting money away for retirement, your personal finance relates to all aspects of your financial health. 

The best way to manage and improve your personal finance is to become financially literate, which means understanding and effectively using myriad financial skills and terms to boost your personal finance. So, whether you’re applying for a personal loan or looking to invest in the stock market for the first time, the term ‘personal finance’ relates to any monetary goals and aspirations that you have. 

What are the key components of personal finance?

The key thing to remember about personal finance is that it encompasses a huge range of financial terms, products, and services. So, it’s best to break it down into fundamental components so you can plan accordingly. 

For instance, some of the key components of personal finance include income, taxes, insurance, loans and debt, expenses, savings, retirement, investments, mortgages, and other forms of credit. Essentially, anything that relates to your wealth should be regarded as a component of your personal finance. It’s important not to neglect any aspects of your personal finance, as each component combines to contribute to your financial health. 

You can also group many of the components together and look to improve your financial literacy along the way. For example, it’s common for income and taxes to go hand-in-hand, while savings and retirement are also intertwined. Grouping the components of your personal finance together can make it easier to manage your financial circumstances and achieve the goals that you set for yourself. 

Why is personal finance important?

Personal finance is important because it influences all aspects of your life. If you’re responsible and show foresight with your financial planning, you are much more likely to live a successful and prosperous life within your means. 

On the other hand, if you ignore any of the components of your personal finances, it will be much more difficult to achieve your goals. Also, neglecting your personal finance in the present will harm your financial prospects in the future, so identifying opportunities to work on your personal finance in the here and now will undoubtedly help you in the long run. 

In other words, considering and planning for the various aspects of your personal finance will improve your current and future financial health. The result of successful personal financial planning is an improvement in the way you currently manage money, as well as an upturn in your future prospects, no matter what your saving and retirement plans are. 

How to keep track of your personal finances?

Your starting point for keeping track of your personal finances is to create a budget. Budgeting means that you’re less likely to get into debt and gives you insight into your spending habits. It also allows you to save money and invest it for the future. 

You can use a free and easy-to-use Budget Planner to help you get started, as it will help you consider each of the important aspects of your personal finance. As soon as you have a budget in place, your next job is to stick to it and monitor your progress. A good way of succeeding with your budget is to allocate the necessary funds at the start of the month, just after getting paid. 

This might mean transferring some money directly into a savings account, repaying your personal loan, investing in a stocks and shares ISA, and keeping sufficient money in your current account to cover your monthly bills. This approach ensures you account for all aspects of your personal finance and means you’re much more likely to stick to your budget throughout the month. 

Conclusion

Improving your personal finances can have a hugely positive impact on so many aspects of your life. Be it getting out of debt or contributing more to your savings each month, setting some personal finance goals and sticking to them throughout the year will help you live comfortably and without all the usual worries associated with money.

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Key Takeaways

It’s impossible to understate the importance of your personal finances. They influence all aspects of your life, from the work that you do to the holidays that you take. Your financial situation dictates the lifestyle that you can lead now, as well as the life you hope to lead during your retirement. Therefore, it’s paramount that you develop a plan and stay in control of your personal finances. Tracking your personal finances is also imperative. Creating and maintaining a budget is the best way to do this, and tracking and recording your expenses along the way will illustrate how you’re doing. Given that there are so many aspects of your personal finances, developing a system to manage and monitor them couldn’t be more important. So, start with a budget and commit to tracking all aspects of your personal finances going forward. You will find that you’re more able to meet your personal and financial goals and less likely to fall into tough times. While it might seem daunting at first, once you develop a system, you will find it easy to manage and track your personal finances. 

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