What are the 4 pillars of personal finance?

Short Answer

Personal Finance plays a major role in an individual's life as it is important to manage your finances well. The four main pillars of personal finance is: 1. Earning 2. Spending 3. Saving 4. Debt/Liability.

Detailed Answer

Introduction to Personal Finance:

Personal finance is a term which describes management of money in terms of saving, investing, and spending by an individual to meet his/her short-term and long-term goals. It is a very important part as it is something which gives the liberty and manage the planning of one’s lifestyle. It includes the topics such as: Budgeting, mortgages, tax planning, retirement planning, etc. to cover all the aspects.

It is not a topic which is taught in school or someone can just learn it, it is something which a person learns with experience and also should know from a young age so avoid troubles in the future. Money is a very important factor as a person can fulfill almost all its needs with the same and its management is also concerned for that.

Much of it is determined by your wages, expenditures, living needs, and personal goals, as well as the strategy you devise to accomplish desired objectives amid your financial restrictions. When it comes to managing personal finance, financial literacy is something that can and should be practiced for the rest of one's life in order to be financially disciplined and capable of achieving several goals at the same time.

Pillars of Personal Finance:

  1. Debt or Liability:

Debt can be defined as the amount of money which an individual owes to another individual. It is something which should be paid off as soon as possible because it will always be a burden in the head.

Debts basically includes all the accounts payable mostly like mortgage, loans, bills due, etc. It is not bad to have debts, but it is important to were them off to build your personal financial growth and achieve your goals in an effective manner. There are certain debts that can be considered positive debts and actually help you increase assets over time, like mortgages.

  1. Savings:

This is the one of the best ways to pay yourself in the future and make yourself financially independent. This framework covers all of the measures and techniques you use to save capital. Another well budget analysis serves as a path map for achieving your objectives.

Economic preparation is similar to driving down the lane, expecting bends, floods, slippery patches, and stopping for repairs and, occasionally, major enhancements. It is believed that you should at least 30% of your earnings. You should also invest your savings to earn better returns.

  1. Earnings:

Earning is the first and the most important aspect because if your do not earn no questions comes in regard of savings, investments, debts, etc. This is a very important part if you want to have a basic and a good lifestyle. It is necessary for everyone to earn to be productive and have an open mind process and also be self-sufficient. If a person does not ear the topic of personal finance will not even arise.

  1. Spending:

It can be also described as budgeting. An individual needs to be mindful of what he/she is spending otherwise, that same person can be in great trouble. It is believed that you should keep 50% of your earnings for your needs and 20% of your earnings as your wants. If a person spends in a budgeted way as per his/her earning then, he/she will be in a right place and a right financial space.

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Categories: Finance
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