What Is Personal Finance? | Definition and Best Practices
Personal Finance Definition
Any time you put money into your savings account, invest in the stock market, pay a bill or plan for retirement you are practicing personal finance.
Defining Personal Finance in Simple Terms
Personal finance can look differently for different people, depending on what each individual person’s goal is. Thinking about what these goals are, and identifying realistic steps in how to accomplish them, with your income and living expenses in mind, is what is referred to as financial planning. However in order to be able to plan effectively, it is necessary that you become financially literate. Meaning, that you are generally aware of the various tips and trends that are out there to maximize the success of your personal finances.
- So without further ado here are a few of the most popular, and most successful tips that will be sure to boost your personal finance practices.
Practice the 50/30/20 Method
Budgeting is perhaps the most important contributor to meeting personal finance goals. The 50/30/20, offers a simple but effective way to manage your income in a way that will also help achieve your goals. The method is as follows;
- allocate 50% of your income for primary needs i.e. food and shelter
- allocate 30% for personalized lifestyle purchases like clothes
- allocate 20% for retirement, debt re-pay or emergencies
Make Credit Cards Work for You, Not the Other Way Around
Credit cards are one of the easiest way to get into debt. But are also absolutely vital to establishing your credit score, making them somewhat of a necessary evil. To make sure your credit cards are helping you, rather than hurting you, make sure you are always doing two things. 1) Never max out your card 2) Always make sure you can pay what you’ve charged at the end of the month.
Think About the Future
There are three ways in which you can ensure the comfort of yourself and your family in the future, today. 1) Pay off your student debt, and do so quickly before the interest becomes overwhelming. 2) Save for retirement, and take advantage of whatever tax-advantaged plan your employer offers. 3) Depending on your needs, construct a living will or create a trust so that your family may be privileged to whatever wealth you leave behind.
What Is Personal Finance? FAQs
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.