What is Personal Finance

                                                                  Introduction

Personal finance is about achieving your financial goals, comprehending all the ways to do this (including saving money, investing, managing debt, purchasing a home, and planning for retirement), and creating a strategy to do so. It is also the name of the sector of the economy that offers financial products to achieve these objectives.

Area of Personal Finance:-

To ensure you have a thorough understanding of the subject, we will break down the most crucial areas of personal finance in this guide and explore each one in more detail.

The five main components of personal finance are income, spending, saving, investing, and protection, as illustrated below. Below, each of these topics will be looked at in greater detail.

1.    Income:-An individual's source of cash flow that they use to support themselves and their family is referred to as their income. It serves as the basis for our entire financial planning process.

    Common Income Are

• Salaries
• Bounses
• Hourly Basis
• Pension
• Dividends

All of these sources of income produce money that a person can use for investing, saving, or spending. This means that the first step on our personal finance road map is income.

2.    Spending:-All costs incurred by a person to purchase goods, services, or anything consumable are considered spending (i.e., not an investment). There are two types of expenditures: cash (paid for with cash on hand) and credit (paid for by borrowing money). The vast majority of people spend the majority of their income.

    Common Spending Are

• Rent
• Mortgage payment
• Taxes
• Food
• Entertainment
• Travel
• Credit Card Payment

The sum of money that a person has available for saving and investing is decreased by all of the above-mentioned expenses. The person has a deficit if expenses are higher than earnings. As crucial as earning money is, managing expenses is even more crucial because most people have more control over their discretionary spending than they do over their income. Good spending habits are essential for managing your personal finances well.

3.    Saving:-Savings are excess funds set aside for upcoming purchases or investments. If a person has more income than they need and less than they spend, the extra can go toward investments or savings. Savings management is a crucial component of personal finance.

       Common Saving Are

• Physical Cash
• Saving Bank Account
• Checking Bank Account
• Money Market Securities

To manage their cash flow and the short-term disparity between their income and expenses, the majority of people keep at least some savings. However, since savings generate little to no return in comparison to investments, having excessive amounts of savings can actually be considered a negative.

4.    Investing:-Buying assets that are anticipated to generate a return on investment involves the expectation that, over time, the investor will get back more money than they initially put in. Investments involve risk, and not all assets actually end up earning a profit. Here is where the link between risk and return can be seen.

    Common Investings Are

• Stocks
• Bonds
• Mutual Funds
• Real Estates
• Private Company
• Commodities
• Art

The most complex aspect of personal finance is investing, which is also one of the topics where people seek professional advice most frequently. The risk and reward of various investments vary greatly, and most people look for assistance with this aspect of their financial plan.

5.    Protection:-A wide range of products that can be used to protect against an unanticipated and unfavourable event are referred to as personal protection.

    Common Protection Are

• Life Insurance
• Health Insurance
• Estate Planing

Another area of personal finance that frequently necessitates expert guidance and can be quite complex is this one. To accurately assess a person's insurance and estate planning needs, a wide range of analyses must be conducted.

Planing Process of Personal Finance:-The key to sound financial management is having a plan and following it. A budget or a formal financial plan can include all of the aforementioned aspects of personal finance. Personal bankers and investment advisors frequently create these plans after consulting with their clients to identify their needs and objectives and determine the best course of action.

• Assessment
• Goals
• Plan Development
• Execution
• Monitoring and reassessment

Your best chance of achieving your personal and family goals depends on you creating a budget or financial plan. An example of a straightforward monthly budget that you could use to control your income, expenses, savings, and investments is shown below.