Understanding the 5 Areas of Personal Finance

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Personal finance refers to the practice of managing your money through planning, budgeting, expenditure, savings, and investments. In addition to short-term planning, it also includes long-term planning that requires you to consider potential financial risks and how your financial situation evolves throughout your life. Besides, the term “personal finance” also describes an entire industry where all the products and services are designed to help individuals manage their finances and leverage investment opportunities.

Why is personal finance important for me?

Personal finance is crucial for managing your day-to-day financial needs and also for making your financial future secure. If you tend to spend your entire income or spend more than you earn, you might feel better today but you are going to feel insecure and anxious in the future when you see your retirement period approaching quickly.

Personal finance planning allows you to take control of your finances and reach your financial goals while making your future secure.

Personal finance encompasses all aspects of finances, including:

  • Credit cards
  • Insurance
  • Social security
  • Budgeting
  • Home and Mortgage loan
  • Other loans plus debt
  • Taxes
  • Retirement
  • Investments
  • Estate planning
  • Risk Management
  • Wealth management

Five Areas of Personal Finance that Everybody Must Understand

  1. Income

Your income lays the foundation for all of your financial decisions and defines how you should handle other areas of finances. It refers to the money that you earn from all sources, including your salary, pension/social security, income from rental properties, or investments.

  1. Spending

Spending includes the money for the expenses you have. It takes into account every little to major expenses, including utility bills, grocery shopping, transportation, house rent, home loan, car loan, insurance premiums, outside dining, and all those things that you have to pay daily, monthly, or yearly.

If you control the amount you spend, you can save more money and put it aside for your future.

  1. Savings

Savings include the money from your income that you do not spend and keep aside for the future. Having savings is essential to cover potential future expenses whether they are planned or unplanned.

By taking small steps, you can accumulate significant savings. You can open a separate Savings Account and/or Deposit Accounts and ensure that you don’t spend from your savings unless it is a critical emergency.

Besides, you can try saving money by using coupons, discounts, and other schemes available at the time of shopping or booking flight tickets, accommodation, travel packages, and other things.

  1. Investing

Investing money is different from saving money. Savings is the leftover part of your income that you have after all expenses. On the other hand, investment is categorized as the purchases of financial items such as mutual funds, stocks, bonds, real estate, ETF, etc. that allow you to earn future income or savings as they are considered to give a good return on investment.

However, investments are associated with risks as there is also a possibility of getting zero return or losing invested money especially when they are done without the proper guidance of a financial advisor.

  1. Protection

Protection is the part that protects you from financial risks and is handled through a variety of financial products, such as annuities, property insurance, life insurance, motor insurance, and health insurance. Purchasing these financial products provide financial security from unexpected financial loses in the future.

Once you start paying attention to all these areas of personal finance, you will get closer to becoming financially stable and secure in the present, as well as the future.

If you are looking forward to getting some help on how to plan your budget, save money, invest money, or protect yourself against possible financial risks, please feel free to call us at +971 4 3573378 or write to us at info@newageib.com to get in touch with our financial advisors and experts.