Personal finance means all types of money held by a person, as well as any financial instruments with which you can achieve personal financial goals. General financial literacy is extremely important not only for your study, but also for building a harmonious life and ensuring its existence with a sufficient number of resources. And if you choose this discipline, you should know where to find answers to personal finance questions.
Personal Finance Questions and Answers
What is money? Money is just one of the financial instruments. Money is the equivalent of the value of all goods and services on the market and performs certain functions:
- Measure of value. This function was inherent in money initially when it appeared, that is, with its help the value of goods and services was determined.
- Means of circulation. Money is in the most free circulation, constantly transferred from one person and company to another.
- Instrument of payment. Also one of the most basic functions, the payment of goods and services is done by means of money.
- Savings. Money allows you to create certain stocks.
- World money. Money is used for exchange in the world market, but this function does not apply to personal finance.
What is finance? Finance is money that is constantly in circulation and can create other money. That is, while cash is in your pocket without any movement – it is personal money. Once they begin to make a profit, they become financial resources.
What is the basis of personal finance?
In order to better understand the structure and basis of personal finance, you can resort to an analogy with a house. The design of each house includes the three most basic components: the foundation, the walls and the roof. Without the house’s foundation, it will be impossible to build a house, because it provides the stability of the entire structure to any external influences. In addition to its simple availability, the foundation must be solid, strong, stable and reliable. A brittle foundation simply cannot hold even the strongest walls. In addition, the height of the walls depends entirely on the reliability of the foundation. The roof is more of a protective function and is required only for certain crises – in other words, bad weather. Especially in severe disasters, it is necessary to provide a sufficiently strong and solid roof so that you can protect yourself from possible consequences. And therefore, even if there is a reliable and stable foundation and strong and durable walls, without a roof, it would be difficult enough to exist, and we would have to endure constant inconveniences and losses.
In the same way, one can imagine the structure of personal finance. If you imagine finance like the main construction of the house, you get the following:
Any personal finance should be built on the basis of a strong foundation, which in turn consists of the following components:
- Financial literacy.
- Values, goals and priorities in life.
- Financial strategy.
Without the construction of a reliable and sustainable financial foundation, building the “walls” will be extremely unstable, constantly collapsing, and require regular repairs and restoration. And very often there can be situations when it will be necessary to build them anew. Therefore, for building a competent “financial house” it is necessary to carefully approach the laying of the foundation.
First of all, it is necessary to raise the level of your own financial literacy. For this, there is no need to study under the special programs of a university; it is not even necessary to attend any courses in financial management. Moreover, learning is built in such a way that it is unlikely that it will be possible to draw anything important for managing personal finances. It is more about personal self-education. At the moment, there is a variety of different literature and information on special resources, and there are special trainings and courses aimed at raising personal financial literacy.
You can start building walls only after a solid and stable foundation is laid. Building of “walls” will include the following categories:
- Short-term goals.
- Financial plan.
- Constant sources of income.
- Personal capital.
This is the final component of the entire construction of a financial house. The components that make up its structure and which will help to cope with any possible financial crisis or smaller problems are:
- Accounting and control.
- Preservation of personal finances.
- Increasing personal finances.
- Protection of personal finances.
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