Personal finance is knowledge about money management for individuals. Obviously, this is a huge body of knowledge – we all have so many decisions about money to make every day. 

Learning about your personal finances, and how to manage them, helps you win with your money – and in your life. 

Areas of Personal Finance

There are two main things you can do with your money: protect the money you have and figure out ways to make more of it.

Stewarding the money you have relieves a great deal of stress from your life – you get to know exactly what money you have, and where it’s going. Once you have this in place, you’re ready to make a plan for your money to help you meet your goals.

And as for making more of it, the thought doesn’t have to conjure up images of misers counting gold or slippery salesmen making every sale they can. More money means more choices in life, more opportunities to help others, more open doors to pursue dreams. 

Personal finance is about combining both of these – using the money you have well and finding ways to grow it – to help you now and in the future. 

The basics of personal finance


Your income is all the money you receive. Your job is probably the largest source of your income, but nearly everyone has some form of a side income. Driving for Uber, reselling your used items, garage or Facebook marketplace sales, pet sitting, and more. It might not be something you do intentionally because you need the money – just doing a favor for a friend or getting rid of old junk you don’t need. It’s all income. 

If you are lucky, you might have income from other sources, like interest or rental income. These can get a little more complicated, and go outside the basics of personal finance, so we’ll leave those for other articles. We’ll just focus on the most common sources of income people have. 

(From a tax perspective, even money you gained illegally is income. So if you robbed a bank or are making out like Grand Theft Auto, the IRS wants to know about it. But please don’t do this.)


You have money from your income, or incomes. Now what are you going to do with it? You’re probably going to spend a lot of it. Rent, utilities, credit card payments, gas, groceries, student loan debt – a lot of your hard-earned money is going to go right back out of your wallet. 

Not to mention, of course, the other things you spend on – new clothes, eating out, the latest iPhone. There’s nothing wrong with spending on these things, but be sure that they fit well into your plan for your money. 

Did you hear that? Plan; that’s the key word when it comes to success with money. It can be easy to spend without thinking, and before you know it, there’s too much month left at the end of your money. 

To fix this, start tracking how much you spend in a month, and what you spend it on. At the end of the month, sit down and really look at where your money is going. This can give you an idea of how to create a realistic budget that fits where you really need to be spending your money, and where you can cut back if needed. 


Saving is key for one important reason: life happens. When your car breaks down, your dog eats something poisonous, or your cousin is getting married in Hawaii, you may find yourself facing a large expense outside your monthly budget. A budgeted savings account for a specific thing, called a sinking fund, can save you in these situations. If you’ve been saving and have money set aside for car repairs, vet bills, and travel, you will be able to handle the situation with confidence.

Saving is best for short-term goals: less than about five years. If you are saving for something beyond that, it may be better to invest your money. Why? In the long term, investing your money can help it to grow at a rate faster than it loses value by inflation. In the short term, you will need your money sooner, and you would get little to no benefit from investing it. If you want to protect your emergency funds or savings accounts from inflation, try a high-yield savings account at an FDIC-insured bank. 


If saving is planning for next month or next year, investing is planning for 20 or 30 years from now. When you invest, you are not guaranteed your money like in a savings account. Instead, you are putting your money to work by buying something that will make you more money. This might be an index fund on the stock market, a rental property, or an entire small business. Whatever it is, it will hopefully return you more money than your initial investment. 

Investing doesn’t have to be complicated. The stock market is a good way to start investing for beginners.

  • Pick a good index fund. What is an index fund? An index fund is a pool of stocks from different companies across the entire stock market index. This means that if one industry, like tech, has a lot of stocks that crash, other sectors of the market might show gains that even out the loss. The end result is a stock portfolio that shows steady growth without the wild ups and downs of individual stock prices. 
    • Some index funds are called “target date funds” This means that they are managed by an investment portfolio manager and the volatility of the fund is changed or reduced as you approach a “target date”, usually a retirement year. This is another safeguard for your money. 
  • Choose an amount that you can comfortably invest every month, and set it on autopay. If you have extra money that month, invest that too. 
  • Repeat for 30 years. The market will go up and the market will go down, and you may celebrate getting rich or panic at the thought of losing your shirt. Just keep riding it out and watch your money grow.  


There are many different ways you can protect your money. You can protect it from scammers and fraudsters. You can protect it from inflation. You can protect it from your own bad spending habits. 

The best way to protect yourself from fraud is to use a credit card, instead of a debit card, for your spending. This isn’t a license to go wild! You are only spending the money you have and that you budgeted for that expense. You are going to pay off that credit card at the end of the month with your budgeted money. The difference is that your money has an extra line of defense. If your debit card information is stolen, your bank account could be drained – and you may have a very difficult time getting the bank to reverse the transactions. Your money is on the line. However, if your credit card information is stolen, it’s a simple matter of a telephone call to the credit card company to dispute charges. It’s their money that’s on the line, and your money stays safe in your bank account. 

The best way to protect your money from inflation is to buy something that will increase in value at the same rate, or faster than, inflation. This might be stocks, real estate, or precious metal. We didn’t look at precious metal much in this article, because it can only hold value, rather than grow over time. An ounce of silver can increase in value over time, but it cannot become two ounces, nor can it provide you an income stream. Stocks and real estate can be assets that increase in value, multiply (in the case of stocks), and provide you with an income as well. 

Finally, a realistic budget that fits your life, and that you can stick to, protects your money from your own worst enemy: you. You can tell each dollar where you want it to go, and how each dollar can make your life better. 

Your money can also be used to protect you. This might look like an emergency fund, or the money you spend every month on life and health insurance. Are you going to need it? Hopefully not. Do you spend the money on it anyway? Yes. After all our talk about investing, you may think that it’s a waste of money to spend it on things you might never use or need when it could be growing. However, it’s about protection. It’s about peace of mind, and knowing that you’ll have what you need when you need it. That’s something no investment can buy you. 

Principles and basics of personal finance

Basically, personal finance boils down to three things: 

1. Planning and budgeting

This is the first part. Make a plan for your money. Tell it where you want it to go every month. Now take that one step further. Make a long-range plan for your money. Consider: how can you get where you want to be in two years? Five years? Then break it down by year, by month, and by week what you need to do with your money to get there. Now you have a monthly budget and a set of awesome goals, custom-made for you and your life. 

2. Savings goals

Now that you have a budget in place, think about how you want to use any extra income you have. First, what are the things you have to save for? Do you have an emergency fund? Is your car on its last legs? Do you have children or pets? A high insurance deductible? Plan how much you might need to save for each of these things. 

Now think about the things you want to save for. A Birkin bag? A trip to Paris? If you want to bring these dreams to life, set yourself a savings goal and work towards it, even if it has to come second to your adultier things. Life is meant to be enjoyed.  

3. Investing

“Invest early and often” – Jeremy Schneider

Finally, investing will help grow your money and help you reach your long-term goals. Investing early will help you harness the power of compound interest. Investing often means that it becomes a habit, and a part of who you will become: a personal finance expert!