Sep 26

The Beginnings to Personal Finance

Currently there are 4 main elements to Saving Money and personal finance generally. These elements comprise all that comes from finance professionally and personally. Understanding them is important to understanding personal finance. Not having them, individuals would not be able to correctly manage their money. Those four elements then combine to create the method to evaluate and manage an individuals financial picture.

The very first element which makes up personal finance is named income. Income is the cash that may be flowing into your bank account from an outside source. A career, business, retirement account, dividends, money from Aunt Sally are all examples of income. Earnings are what a person earns from some where else.

The following element to understand is named expenses. Money that flows away from your bank account to an outside source to repay a debt is considered a cost. Expenses come from bills, credit card payments, buying food, purchasing gas, renting a car, taking a vacation, etc. Whenever your money flows to a different person’s or companies coffer, it is an expense.

Once you combine Income and expenses, you have what is called an income statement. An income statement simply informs you what money that you are earning minus the money you happen to be losing in expenses. After subtracting both of them, it displays what funds are left at the conclusion from the specified period which the information was gathered.

The income statement only tells how much cash is flowing inside and outside of accounts as well as what it is flowing to. The following pair of definitions explains ownership.

Assets are valuables that maintain a degree of monetary worth. A property is considered an asset. Some old baseball cards in the attic that happen to be worth cash is an asset. An asset may be a movie collection or maybe someones car. To put it simply, something that you can sell to other people to get a profit is known as an asset.

The fourth term to understand is liabilities. Liabilities are long-lasting debt that is carried by and individual or business. If something is purchased on credit or by loan, those instruments are viewed as liabilities. Every time a person has unsecured debt or has taken out an auto loan, that debt can be described as liability.

When assets and liabilities are subtracted from one another and a number is found, that document is called a balance sheet. The number that may be left over in the end, whether it be good or bad, is called a persons net worth.

When trying to comprehend the fundamentals of personal finance, the main elements again are income, expense, assets, and liabilities. Any time you put them together you will get an income statement plus a balance sheet. This is the basic level of personal finance that anybody must learn so they can learn how to manage their cash.


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