Basic Personal Finance Concepts [2023]

If you’re like most people, you probably don’t think much about your personal finances. But learning the basic personal finance concepts can help you save money and make better financial decisions.

This article will show you the basics of personal finance so you can get started on the right foot. We’ll cover topics such as budgeting, saving, and investing.

So whether you’re just starting out or looking to improve your financial literacy, this guide will provide some helpful tips!

personal finance basics
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Definition Of Personal Finance

According to Wikipedia, Personal finance is the financial management that an individual or a family unit performs to budget, save and spend monetary resources over time, taking into account various financial risks and future life events.

The Household Debt Problem In The US

According to the Federal Reserve Bank of New York, total household debt surpassed $16 trillion in the second quarter of 2022; Mortgage, auto loan, and credit card balances all increased.

Outstanding student loan debt was $1.59 trillion.

    Outstanding credit card debt was $890 billion.

    A solid foundation in personal finance is critical for everyone, yet it is not a requirement in most schools.

    This can have devastating consequences, leading to financial insecurity, stress, anxiety, depression, and even bankruptcy.

    Financial insecurity is also a major cause of relationship problems.

    Why Is Personal Finance Important?

    Personal finances are about setting financial goals. These goals include starting a budget, college savings, or retirement.

    How much you spend depends on your financial situation. The American people are now struggling with debt because they don’t understand their financial needs or have financial discipline.

    You can develop the skills and knowledge needed to make sound decisions about your money by taking an active role in your financial life.

    How To Educate Yourself

    You can increase your financial literacy by learning basic concepts like budgeting, investment strategies, the importance of credit reports, and personal finance education.

    That’s why it is essential to have a solid understanding of personal finance basics.

    Personal Finance Classes

    There are several ways to gain personal finance education, including taking classes, reading books, and speaking with a financial advisor. We listed a few places you can take personal finance classes.

    UdemyPersonal Finance Courses

    Skill SharePersonal Finance Courses

    Learn Personal Finance Terms


    Earned incomes are wages and salaries, Social Security and other government benefits, dividends, interest, business ownership, and other income sources. This is usually taxable income.


    Expenses are the costs of something or the money spent on something. Housing, transportation, living, etc. (Wikipedia)


    An asset is a resource with economic value that you own or control with the expectation of a positive future benefit. (Wikipedia)


    Liabilities are debts or money you owe to another person or institution. (Wikipedia)


    Debt is the obligation of one entity to make agreed-upon payments to another. (Wikipedia)

    Debtor – The entity making the payments

    Creditor – The entity receiving the payments

    How To Manage Your Money

    Managing your money is one of the most important things you can do for yourself regarding personal finance.

    There are several ways to manage your money, but the most important is to create a budget and stick to it.

    This will help you track where your money is going and ensure you’re not overspending.

    Another key to managing your money is by investing in yourself. This includes saving for retirement and paying off any debts you may have.

    Bank Accounts

    Open A Checking Account

    Use your checking account to pay your bills. Try to find an institution that provides free checking accounts.

    ChimeChecking Account

    Ally FinancialChecking Account

    Open A Savings Account

    Use your savings account to build your emergency fund and save for other investments.

    ChimeSavings Account

    Ally FinancialSavings Account

    Start An Emergency Fund

    Emergency Savings
    Basic Personal Finance Concepts [2023] 5

    An emergency fund is vital for anyone who wants to be prepared for unexpected expenses.

    A bank account that is dedicated to this purpose can help you cover unexpected costs without having to rely on high-interest loans.

    It is a good idea to start small and gradually build up your fund over time. Many experts recommend setting aside enough money to cover 3-6 months of living expenses.

    This will ensure you have the resources you need if you lose your job or face other unexpected financial challenges.

    An emergency fund can help you avoid using high-interest-rate credit cards and give you the peace of mind that you are prepared for whatever life throws your way.

    Create A Budget

    Without a budget, saving money and making important financial decisions are difficult.

    Budgeting involves planning your finances out in advance. Take a look at our article on the 50 30 20 budget.

    This includes knowing how much income you’re expecting to earn during the month and taking into account all of your typical monthly expenses such as:

    Housing – This can include your mortgage payment or rent.

    Transportation – This includes car payment, insurance, and maintenance.

    Living Expenses – This includes food and utilities.

    Misc/other – This can include child care, loans, credit cards, insurance, and entertainment.

    How To Create A Budget

    It’s not always easy to start a budget. Here are a few tips to help you create a budget that works for you:

    1. Track Monthly Expenses.

    This will give you a good idea of where your money is going each month.

    2. Decide Your Goals.

    Then create a budget that reflects those goals. If you want to save money, ensure your budget includes room for savings.

    3. Make Adjustments.

    Your budget won’t be perfect the first time around, so be prepared to tweak it as needed. The most important thing is that you stick to it!

    MintFree Budget Template

    ConsumerFree Budget Worksheet

    Start Saving

    One of the most important things to understand is the importance of saving.

    Even if you don’t have a lot of extra income, regularly setting aside small amounts of money can add up over time.

    Reasons to Save

    Saving For College/Education

    Saving for college is one of the most important things you can do to ensure a bright future.

    Start as early as possible to accumulate enough money.

    Avoid taking out student loans.

    Take advantage of all available tax breaks, grants, and scholarships.

    Saving To Buy A House

    It’s no secret that buying a house is a huge financial commitment.

    For many people, saving up for a down payment is daunting. But it’s not impossible. In fact, there are several advantages to homeownership.

    Owning a home is a great way to create stability for your family.

    Owning a home can create wealth by allowing you to build equity in your home.

    Health Savings Account

    Health savings accounts are a way to save money on medical expenses and taxes. But not everyone can have one. Check with you health insurance provider.

    Start Investing

    personal finance investing
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    Starting an investment portfolio is a great way to build wealth; increasing your financial literacy by having an investment strategy allows you to spread your money across different types of investments and help to minimize your financial risks.

    You can also invest money in assets such as CDs, stocks, or bonds that will provide you with regular income streams that can be reinvested.

    Whatever method you choose, remember that saving up enough money for a house takes time and dedication.

    But it’s doable if you put your mind to it!

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    What Is A Security?

    A security is an investment instrument such as a stock or bond.

    Types Of Investments

    CDs – Certificates of deposit

    A certificate of deposit is a type of savings account that usually pays higher interest rates than regular savings accounts. (

    Opening a CD is easy to obtain a guaranteed return on your money with no risk.


    A stock is a type of security that gives a unit of ownership in a company. (

    Buying a stock is relatively easy in todays world. With apps such as Robinhood, Webull,


    A bond is a debt security. It pays out a specific rate over the life of the bond. (

    Mutual Funds

    A mutual fund pools money from a group of investors and invests in different types of securities. (

    Investors buy shares of the fund.

    ETF – Exchange Traded Fund

    Similar to mutual funds, an ETF pools investor money together and invests in different securities. (


    A digital currency is designed to work as a medium of exchange through a computer network that does not rely on any central authority. (

    Know Your Credit Score

    One of the most important aspects of personal finance is your credit score.

    This three-digit number reflects your credit history and is used by lenders to determine your creditworthiness for loans and credit cards, and it can also affect your interest rates.

    Make sure your credit is in good shape by getting a free credit report from each of the three major credit reporting agencies: Experian, Equifax, and TransUnion.

    You can order your free credit reports at Review them regularly so you can catch any errors or inaccuracies.

    By keeping an eye on your credit report, you can ensure that your credit score stays as high as possible.

    Monitor Your Credit Usage

    Credit usage plays a crucial role in determining your credit score.

    Good credit requires you to keep your credit utilization below 30%. Credit scores vary widely, but scores generally range between 300 to 850.

    How To Build Credit

    One of the best ways to build credit is to use a credit card responsibly. Make sure you always make payments on time and keep your credit utilization low.

    How To Rebuild Credit

    Rebuilding your credit takes time and dedication. Start by getting a secured credit card, and ensure the card reports the activities to the credit bureaus. Make on-time payments for six to twelve months, and you may qualify for an unsecured card. Keep your credit utilization low.

    Debt Management

    For many of us, debt is a fact of life. Whether it’s a car loan, a student loan, or credit card debt, carrying a balance can be a monthly struggle.

    If you’re looking to get out of debt, there are a few things you can do to speed up the process.

    Cut back on unnecessary expenses.

    Boost your income by working overtime or taking on a side hustle.

    Once you’ve got your expenses under control, you can start to focus on paying off your debt.

    Focus on the highest-interest debt first.

    If you’re struggling to make monthly payments, focusing on the debt with the lowest balance may be better.

    Whichever strategy you choose, the important thing is to make consistent progress each month.

    You can eventually become debt-free by sticking to a plan and staying focused.

    Payoff Your Loans

    Credit Cards

    Credit card debt can be crippling and quickly spiral out of control. Paying it off should be a top priority!

    Making the minimum monthly payment can be a big mistake! You’re most likely only paying the high-interest portion of your balance.

    Student Loans

    Student loans can be a massive burden for graduates. By paying them off, you can free up more money each month to save for retirement or invest.

    Car Loans

    Paying off your car loan can save you money in the long run by reducing the amount of interest you pay.


    Knowing you have the right insurance gives you peace of mind, especially during tough times.

    But sometimes, it’s hard to know what type of insurance you need.

    The list below can give you some idea of what types of insurance are out there.

    Health Insurance

    Health insurance is a type of insurance that covers medical bills.

    Life Insurance

    Life insurance financially protects you and your loved ones in case of an unexpected death. It can provide peace of mind during difficult times.

    There are two main types of life insurance:

    Term Life Insurance

    Term life insurance is a type of life insurance that provides protection for a specific period of time, usually 10 or 20 years. It pays a death benefit if the insured person dies during the policy term.

    Whole Life Insurance

    Whole life insurance covers you for your entire lifetime. Decide which one is right for you.

    Auto Insurance

    Auto insurance is a type of insurance that covers damage to your car in the event of an accident.

    Home And Renters Insurance

    Homeowners insurance protects you and your property in case of an unexpected event, such as a fire or theft.

    Renters insurance is a type of insurance that covers damage to your belongings in the event of an accident.

    Long-Term Care Insurance

    Long-term care insurance covers the costs of care for seniors who need assistance with activities like bathing, dressing, and using the toilet.

    Always keep your policies updated!


    The longer you wait, the more effort it will take to build for your future retirement.

    You should aim to save 15% of your income for retirement.

    Retirement Accounts

    401(k) employer-matching retirement accounts are one of the best ways to increase your retirement savings it’s like getting free money. If that’s an option for you, take advantage of it.

    Roth IRA

    A Roth IRA is a type of retirement account that allows you to save money tax-free. Contributions can be withdrawn at any time, and qualified distributions are tax-free.


    An annuity is a type of insurance that pays out a set amount of money each month. It can be used to provide a steady income in retirement.

    You want to make sure you’re in good financial health when you reach retirement age. You need enough monthly income and cash flow to pay bills.

    Estate Planning

    Estate planning is making arrangements for managing and disposing of your assets in the event of your death or incapacity.

    An estate plan can include a will, a living trust, or an advance directive.


    Wills are legal documents that indicate how you would like your assets to be distributed after your death.

    Living Trust

    Living trusts are legal arrangements that allow you to place assets into a trust during your lifetime and manage them by a trustee for the benefit of designated beneficiaries.

    Advance Directive

    Advance directives are legal documents that allow you to appoint someone to make decisions on your behalf if you become incapacitated.

    Plan Your Future

    If you want your assets protected after a person passes away, make a will and establish a Trust if your needs change.

    Other essential documents include powers of attorney.

    Although none of those files directly affect you, they can save a person’s next of kin time and costs in the unfortunate situation.

    While estate planning can be a complex process, it is a crucial step in ensuring that your wishes will be carried out in the event of your death or incapacity.

    Financial Security

    Financial security is important for everyone. It gives us peace of mind and allows us to live our best lives.


    Before Tax Income

    Before tax income is the amount of money, you earn before taxes are taken out.

    After-Tax Income

    After-tax income is the amount of money you earn after taxes are taken out. Maximize your after tax dollars by taking advantage of tax deductions and credits.

    Frequently Asked Questions:

    What Is personal finance?

    According to Wikipedia, Personal finance is the financial management that an individual or a family unit performs to budget, save and spend monetary resources over time, taking into account various financial risks and future life events.

    Why is personal finance important?

    The American people are now struggling with debt because they don’t understand their financial needs or have financial discipline. You can develop the skills and knowledge needed to make sound decisions about your money by taking an active role in your financial life.

    Final Thoughts

    Almost any financial planning effort is achievable, just as long as you have the organizational skills, control your spending habits, and a desire to maximize the earnings that are available to you.

    You may need professional advice for tax planning and investing. These might include a Certified Financial Planner or a Certified Public Accountant.

    We hope you understand what Personal Finance Basics is all about. Your financial literacy can make all the difference in building your net worth.

    Andre Flowers
    Andre Flowers

    Hello, my name is Andre Flowers and I have been a Licensed Real Estate Professional for over 24 years. I also carry several certifications, including: Certified Distressed Property Expert, Certified Global Business Professional, Certified Credit Repair Specialist.

    As a current Mortgage Underwriter with 15 years of experience, I have seen my fair share of money-related issues. Whether that be high levels of debt, not enough credit, or simply a lack of funds - I’ve had clients who fit into these categories.

    Here I will share tips, tricks, and experiences on how you can get yourself back in control of your finances.

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