5 Important Aspects of Personal Finance

By Miranda Marquit

When you think of personal finance, you probably have vague ideas of budgets and trying to pay off debt.

However, understanding some of the important aspects of personal finance can help you better approach your money. Knowing the different parts of personal finance also helps you organize your future more effectively.

Here are some of the areas you need to make sure you tackle over time:

1. Cash Flow Management

One of the most important (and obvious) aspects of personal finance is cash flow management. This is all about how much money is going in, and where that money goes.

Getting your cash flow under control is vital before you can do anything else with your money. This includes budgeting, or making a spending plan, as well as understanding when you are overspending and in debt.

You don’t have to stop spending altogether. Instead, review your values and priorities. Once you do that, you can create a spending plan that reflects what you want to accomplish.

The idea is to get your finances to the point where you are living within your means so you can build a solid foundation for the future. Additionally, paying attention to your cash flow management can help you become more aware of where your money is going — and help you make better choices in the long run.

2. Consumer Debt Reduction

Not all debt is bad. In fact, used properly, some types of debt can actually be helpful to your finances. However, many of us find ourselves drowning in consumer debt. This is the type of debt to reduce.

When you pay interest, your charges go straight into someone else’s pocket. The only thing you get out of it is the ability to borrow money. Unless you have low-interest debt that helps you accomplish another goal, like attending school, starting a business, or getting a car so you can get to work, it can make sense to pay off your debt as quickly as possible.

If you have high-interest debt from credit cards and other types of loans, create a plan to pay it off. Your debt reduction plan can go a long way toward helping you move to the next stage of your financial journey.

3. Asset Protection

This is one of the aspects of personal finance that many people overlook. When you buy insurance, you have the chance to protect your assets, limiting your risk of financial catastrophe. One hospital visit can devastate your finances if you don’t have insurance. A car accident can leave you without a way to get to work if you don’t have coverage that allows you to take a payout and buy another car.

From home insurance to life insurance, you can protect your finances and your family when you pay attention to your coverage. Sit down and figure out what you need and pay for the right insurance coverage.

4. Long-Term Planning and Investing

Long-term financial planning is a huge part of managing your money, but sometimes it falls through the cracks. Set aside money for emergencies, as well as for long-term goals like retirement and sending your kids to college.

In order to reach some of those goals, investing is required. You don’t need to go into stock picking, though. If you invest through your employer’s plan, you are likely investing in index funds that will help you grow your wealth over time.

You can use investing as a tool to help you accomplish other goals as well. I like to use a taxable investment account to save up for travel, in addition to having tax-advantaged accounts for retirement.

5. Tax Planning

Another of the aspects of personal finance that you might not pay attention to is tax planning. You might be surprised at how you can keep more of your money with the right approach to taxes.

Depending on how you spend, whether or not you have a business, and other factors, you might be able to keep more of your money — and put it to use for you. From putting your money in tax-advantaged investment accounts, to figuring out how to get deductions and credits for some of your expenses, you can help your money grow more efficiently.

A tax professional can help you determine the implications of your moves.

In the end, understanding the different aspects of personal finance can help you make better decisions today, and plan ahead for tomorrow.