Finance can be defined as the allocation of assets and liabilities of a person, company, or a firm over time. Assets refer to the resources of value held by an individual, firm or company while liabilities refer to the obligations of an individual, firm or company to other entities. The assets and liabilities are recorded on the balance sheet. Finance is categorized into three broad categories: personal finance, corporate finance, and public finance. This article concentrates more on the personal finance than corporate finance and public finance.
Personal finance is the simplest classification of finance since it deals with the financial management of assets and liabilities of an individual or a family. It entails how a person/ family earn its income and spends his/ her income. After earning income, people always plan (budget) how to use it. The income earned is used to satisfy basic requirements thus forming part of expenditure.
Personal finance deals with the allocation of those revenues and expenses of individuals. After earning income, people should budget their income so that they can identify which needs to satisfy first. Sometimes the amount of money spent equals to the quantity of money earned. In this case, there is no surplus, which could be saved for future purposes.
In case the amount of income is more than the expenses, most people use the surplus for luxurious activities such as movies and luxurious foods. For a person who understands finance, such excess is should be saved for future needs such as education, insurance, retirement, health, and other uncertainties in the future.
Finally, personal finance is a body of finance that involves management personal assets and liabilities over time. In personal finance, money earned is allocated to cater for the expenses of an individual while the excess can be used for luxury or saved for future uncertainties.