Would you ever like to know about personal finance? Wherever you are in your financial situation, there is always a need to learn. You work hard to earn money. We all are taught to work hard to earn money. You spend money, because you have to do it. Have you ever thought about wisely managing your money?
The first step to know about personal finance is to know about your money. Here are some of the terms you can begin to understand.
What is income?
Income is any money that a individual or business has earned as part of their work or service. A person’s total income is the actual money he gets for his work. The Net Income is the money he gets after all the deductions and taxes. Net income is the amount credited as a monthly salary in the bank. Most people earn income from their monthly salary.
What is Expense?
The personal expenses are cost incurred for personal purposes. Tracking a personal expense is a difficult component of life. The money that goes out from your bank account towards cost of any purchase or service is called expense. There are two broad categories of personal expenses: fixed expenses and discretionary expenses.
Fixed expenses are the costs that you have to pay every month regardless of the use of the service. The most prevalent fixed expenses are rent, loan, utility bills, tuition fees etc.
Discretionary expenses are unpredictable expenditures that you need to pay at that point of time. The nature of the expenditure varies on a monthly basis. The most common expenses are Clothing, restaurants, groceries, travel, entertainment, medical illness, etc.
What is Investment?
Investment is a personal wealth creation vehicle. Personal investment is the surplus money from the income that has been invested in order to generate future income for the future financial need. Emergency fund and pension fund are the most popular investments. One should create investment portfolio based on financial goals and needs. The right investment is making the money to grow.
What is Loan?
Loan is a sum of money that you borrow from financial institutions such as banks, friends, families etc that you have agreed to repay as interest with some extra money. Loans are two types, secured loan and unsecured loan. Security loans are collateral loans given for an asset. Unsecured loans are granted based on your income capacity and goodwill. Because these loans are difficult to get back, they charge high interest rates.