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Most people keep at least some savings to manage their cash flow and the short-term difference between their income and expenses.

Managing savings is a critical area of personal finance. 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.

Saving refers to excess cash that is retained for future investing or spending. Good spending habits are critical for good personal finance management. Managing expenses is just as important as generating income, and typically people have more control over their discretionary expenses than their income. If expenses are greater than income, the individual has a deficit. The expenses listed above all reduce the amount of cash an individual has available for saving and investing. The majority of most people’s income is allocated to spending. All spending falls into two categories: cash (paid for with cash on hand) and credit (paid for by borrowing money). Spending includes all types of expenses an individual incurs related to buying goods and services or anything that is consumable (i.e., not an investment). In this sense, income can be thought of as the first step in our personal finance roadmap. These sources of income all generate cash that an individual can use to either spend, save, or invest. It is the starting point for our financial planning process. Income refers to a source of cash inflow that an individual receives and then uses to support themselves and their family. Each of these areas will be examined in more detail below. In this guide, we are going to focus on breaking down the most important areas of personal finance and explore each of them in more detail so you have a comprehensive understanding of the topic.Īs shown below, the main areas of personal finance are income, spending, saving, investing, and protection. This guide will analyze the most common and important aspects of individual financial management. The process of managing one’s personal finances can be summarized in a budget or financial plan. Personal finance is the process of planning and managing personal financial activities such as income generation, spending, saving, investing, and protection.