finance is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting.

types of finance

There are three main types of finance: 1personal, corporate, and 3 public/government. This guide will unpack the question: what is finance?

Personal finance, as a term, covers the concepts of managing your money, saving, and investing. It also includes banking, budgeting, mortgages, investments, insurance, retirement planning, and tax planning. … It also includes banking, budgeting, mortgages, investments, insurance, retirement planning, and tax planning.

Saving

Saving refers to excess cash that is retained for future investing or spending. If there is a surplus between what a person earns as income and what they spend, the difference can be directed towards savings or investments. Managing savings is a critical area of personal finance.

Common forms of savings include:

  • Physical cash
  • Savings bank account
  • Checking bank account
  • Investing

Investing relates to the purchase of assets that are expected to generate a rate of return, with the hope that over time the individual will receive back more money than they originally invested. Investing carries risk, and not all assets actually end up producing a positive rate of return. This is where we see the relationship between risk and return.

Protection

Personal protection refers to a wide range of products that can be used to guard against an unforeseen and adverse event.

Common protection products include:

  • Life insurance
  • Health insurance

The Personal Finance Planning Process

Good financial management comes down to having a solid plan and sticking to it. All of the above areas of personal finance can be wrapped into a budget or a formal financial plan.

These plans are commonly prepared by personal bankers and investment advisors who work with their clients to understand their needs and goals and develop an appropriate course of action.

Generally speaking, the main components of the financial planning process are:

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

Additional Resources

Thank you for reading this CFI guide to personal finance. We hope it has helped you understand what managing personal finance is all about, why it’s important, and how to go about doing it.

CFI’s mission is to help anyone become a world-class financial analyst and have a meaningful career. To help you in your journey, you’ll find these additional cfi resources helpful:

Personal Finance Budget – Example

Preparing a budget or a financial plan is critical for giving you the best shot at achieving your personal and family goals. Below is an example of a simple monthly budget that could be used to manage your income, expenses, savings, and investments.

As you can see in the example below, there are three potential sources of income (salary, bonus, and other), followed by a list of expenses (rent, food, groceries, restaurants, entertainment, childcare costs, vacations, etc.), and the difference between the two is the person’s monthly surplus or deficit.

Personal Finance Budget – Example

If you’d like to use this free template to help you with your personal finances and planning, please download the Excel spreadsheet and edit it as appropriate to fit your own needs. Additionally, you should always consult a professional advisor before making any financial or investment decisions.

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