The Best Way to Understand Personal Finance
by Mikal Jason Educational ProfessionalWhen trying to understand
personal finance, it is best to understand what personal finance is. Many
people think that accounting and personal finance are the same, but personal finance
is not accounting. On the surface it may look like one; Both are about money.
However, the definitions will help us better understand the differences. Merriam-Webster
defines accounting as "a system of recording and compiling business and
financial transactions, and analyzing, verifying, and reporting the
results." Based on this definition, we see that accounting is the process
of analyzing and recording what you have actually done with your money. So when
it comes to your personal finances, an accountant is usually not enough.
Accountants
generally don't worry about personal finances (there are some exceptions to
this rule). Unless your accountant is also a financial advisor or coach, he or
she will likely look at what you did with your money at the end of the year and
give you a report of their analysis. This report is usually your tax return;
What you owe the government or what the government owes you. Rarely does an
accountant provide a person with a balance sheet, income statement, or net
worth statement; All the most useful and necessary tools to effectively manage
your personal finances. Personal finance approaches your finances from a more
proactive and goal-oriented perspective. It gives accountants something to
record, check and analyze.
Merriam-Webster
(The Concise Encyclopedia) defines "financing" as "the process
of raising money or capital for any kind of expenditure. Consumers, businesses
and governments often do not have the money they need to make purchases or
finance their operations." " necessary to carry out operations while
depositors and investors have access to funds that can earn interest or
dividends if used productively. Funding is provided through agencies including
commercial banks, savings banks, and credit unions, loans, loans, or a money
transfer process from to savers in the form of invested capital. and
non-banking organizations such as credit unions and investment companies.
Finance can be divided into three broad areas: business finance, personal
finance and general finance. These three areas include budgeting and managing
money for the best results.
simplify personal finance
Understanding
the definition of "finance", we can divide "personal
finance" into 3 simple activities:
1. The process of raising money or capital for any
type of expenditure = generating income.
A company makes
money by selling its products and services. This is called "income"
or "earnings". Some companies will also invest a portion of their
earnings to earn more income (interest income).
A person
receives money by working or working with a small business (self-employment,
sole proprietorship, network marketing or other small business). The money
received can be a salary, hourly wage or commission and is also called income.
The government
gets money from the taxes we pay. It is one of the main ways the government
generates revenue which is then used to build infrastructure for our cities
such as roads, bridges, schools, hospitals etc.
2. Using money to make a purchase = spending money.
How much we
spend relative to what we earn makes the difference between making the best use
of our personal finances. Making good spending decisions is critical to
achieving financial wealth—no matter how much you earn.
3. Getting the best result = keeping money as long as
possible
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Created on Dec 9th 2022 00:13. Viewed 108 times.