CATEGORIES OF PERSONAL FINANCE

How many surprises do you encounter in your daily life regarding your finances; unexpected car problems, medical bills, dream vacation? Are you a culprit of impulse buying? Do you find yourself in cash crunches before your next payday? Well yes, we all possibly have fallen victim of consequences of improper personal financial planning. Simply put, planning and monitoring your budget will help you prioritize your spending as well as identify wasteful expenditures, adapt quickly as your financial situation changes and achieve your financial goals. There are five categories that attribute personal finance: INCOME is the money received on a regular basis from, work or through investments. It is the first step that is considered when starting the process of understanding your finances. Knowing how much money you have coming in will influence your decisions when it comes down to distributing that income to categories that can affect the outcome of your finances.

SPENDING is basically paying out to buy goods or hire services. It is usually the second action taken by an individual when it comes to money and it can either make or break the budget, this is especially true for unexpected cases like an emergency. One should keep a tight grip on spending as it plays a vital role in determining the success in reaching your financial goal. SAVINGS can be defined as the amount set aside from the income so received by an individual for future use. Simply put, it is the money not spent immediately. Saving is the most crucial step in process of financial planning. There are numerous ways of saving extra money and getting one step closer towards achieving your goal like checking account, money market account, high yield savings account and through other investments. INVESTING is an effective way to put your money to work and potentially build wealth. In other words, investing is expending money with the expectation of achieving a profit or material gain by putting it into financial plans, shares or property. The main purpose of investing is to generate returns from the invested asset. Saving money is important but after building three to six months of easy to access savings, investing into financial market can offer many potential advantages. PROTECTION is nothing but measures taken to guard a thing against damages caused by external forces. In financial terms, protection means purchasing some type of insurance. Insurance is an important financial tool. It can help you live life with fewer worries knowing you’ll receive financial assistance after a disaster or accident, helping you recover faster. All in all, creating a financial plan can be time consuming and may require you to face up to some financial realities that you have been avoiding, but it is worth it in the end. Once your plan is complete, you can begin taking steps to ensure that your finances are in order and running smoothly with no doubt, you live a peaceful life with no surprises.