Personal Finance – Definition, Categories, Importance In Simple Words[ 2023 ]

What is Finance In simple words?

In simple words, finance is anything directly or indirectly related to money can be known as finance.

Types of finance.

Normally there are three types of finances:-

  1. Personal Finance
  2. Corporate finance
  3. Business Finance

In this article, we are going to understand what is personal finance, what are some categories of personal finance, and why is personal finance important.

What is Personal Finance?

Personal finance is finance that is related to one’s money management, budgeting, saving, investment, tax advantage, insurance, etc can be defined as personal finance.

Personal finance can vary from person to person depending on their needs, wants, desires, and so on. Let’s Understand how personal finance can be different for different people, for example, if there is a guy who is an entrepreneur and there is another guy who is an employee there will be a huge difference between personal finance planning whether it is tax planning, budgeting, investment, saving or money management, etc everything will be different.

What are the categories of personal finance?

Money and Debt Management

Money management is one of the crucial steps of personal finance. Because every person in the world directly or indirectly gets money but then also they don’t know how to manage their wealth properly so that they can use it emotionless and as well as with proper planning. So that they don’t feel regret after spending on unwanted things. Lots of people use money consciously or unconsciously and get into that bad debt and they can’t get out of that debt because they don’t know how to manage that debt properly.


Let’s understand budgeting by example if you earn 5000$ a month and you spend around 6000$ a month and at the end, if you track your budget or analyze your budget then you will get to know that some of the things that you don’t want you had purchased that thing in emotions nothing else. So that’s why making a budget is important so that you can’t spend on unnecessary things you don’t want.


By the way, I know everyone is familiar with saving let’s suppose saving simply. Your monthly income is 3000$ and you spend 2500$ a month and the remaining balance of 500$ is your saving. The key thing is that everyone earns money but they don’t know how to save money if you know and if you do proper savings so congratulations you are doing good in your life. If you can’t save money sorry my friend you have to work hard on learning how money works.

Investing and Planning

Listen if you are one of those who saves money in the locker or the bank, guys you are not going to grow your money in the future I know that if you keep your money in your bank or the locker and I do respect your thoughts but if you thinking that saving money can make you rich then my dear friends I am sorry saying this is that you can’t and you shouldn’t do this.

Just go and check out every millionaire or billionaire or rich person they became rich by investing with proper planning not by saving that money tell me how much you can save all your life long you can’t because in future the expenses will go high and high so your saved money can’t save you so please understand investing is very very important.

Risk Management

Risk management is very important because many of us just randomly by seeing or hearing, neighbors or your relatives that they are investing in so and so company or so and so and so share market they blindly follow their colleagues.

If they had invested 10000$ in that particular segment they will also do the same without thinking about their risk capacity and without seeing their potential they randomly just do that and after that, they will say oh yes I did it.

I had made that small amount of investment in this and that company. Wrong you can’t do that man before investing you have to have proper risk management.


Listen I don’t have to say anything about insurance because many of us have the opposite point of view. But listen you can say many of us have a tendency to that why we have to get insurance and if anything won’t happen my amount will be wasted.

I just wanted to say many of us have the phone right mobile phone whether it can be iOS or Android we have a back cover, yes or no. I know most of us have a back cover on our smartphones. Why for safety purposes right? Insurance is also like a mobile phone back cover it protects you in bad times so I recommend that you should have insurance.

Tax Advantages

Many people are always claiming that government does not do this and that, they don’t think of us common people but let me tell you one thing lots of tax benefits is provided by the government.

If you know that particular tax advantage you can get why shouldn’t you do that only because you don’t know that it’s your fault, not the government stop blaming Government and start taking action from today onwards.

Social Security

Social security is very important for every individual. Security is very important for everyone. If you are making online payments by Google Pay or any of the other mediums you should take care that you are typing your PIN in private or somewhere else where nobody is seeing you while typing.

Why personal finance is important?

1. It makes you smart regarding finance.

2. It helps you to control your needs, expenses, and desire

3. You will start changing your perspective toward money.

4. It secures your financial journey.

5. It helps you to build confidence regarding money talk among your circle

6. You can help others in personal finance.


What is Personal Finance in simple words?

The management of budgeting, saving, investment, etc can be called personal finance.

Who should know about personal finance?

Every person in the world who want to earn money or manage money should know about personal finance. In short, every person should know irrespective of their background.

Best books on personal finance.

Rich dad Poor dad at the top according to me. No doubt the rest of the books are to our best but Rich dad Poor dad is at the top.

Hope you got the content that you were looking for. Thank you so much for reading the article. Don’t forget to share because sharing is caring.

Leave a Comment