What is Personal Finance?

This may seem pretty obvious to most, but there are so many different situations and everyone has a different set of circumstances. Here is a basic overview.

• Income and expenses

Gross Income, net income what’s the difference between the two? Gross income is money earned before any taxable deductions are taken off. This is normally your package deal that you earn from your employer each month. It’s higher than your net income, and if we didn’t have to pay taxes we would all be better off earning higher salaries.

Earned income or net income is the amount you left with after all taxes and any company benefits are deducted, for example pension contributions or medical contributions. This is the amount you receive in your bank account.

Disposable income is what you have left after paying off your monthly contributions, for example pay off debt, groceries, utilities, auto financing etc. If you are in debt then usually this amount seems quite small, and also demotivates you in paying off your debt faster.

• How to manage Personal Finances

No one likes the word budget, nor do we want to live frugally forever saving each penny. But a budget can help you in managing your finances better.

Take a piece of paper, draw a line down the centre and list all your expenses and all your income you received after tax (Net income in your bank account).Subtract your expenses from your income and you left with disposable income. You can call this budgeting or if you don’t like the word call it your Income statement or expense statement. Get into the habit of doing this once a month to monitor your progress through the year.

This can help you allocating funds towards paying off debt and saving a portion of the surplus funds.

Personal finance shouldn’t be a daunting task to manage, there are plenty finance software packages out there. Some you pay for and others are free, visit mint.com this site is free and has a lot of information as well as finance calculators you can use.

So essentially think of your personal finances as corporations finances. You have an income and some expenses. For a profitable company to exist, you need to make sure your income exceeds your expenditure. Bank the profits and live a comfortable life with money in the bank and completely debt free.