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Personal Finance

By Edited Jun 5, 2016 2 1

Personal finance is a very general topic that can be broken down into the three basic categories of income, expenditures and net worth. Although each individual's situation is different, these three categories apply to everyone. Obviously the inhabitants of some areas of the world have the potential to be more prosperous than people in other areas of the world. But regardless of where you are in the world, personal finance is governed by the three main factors of income, expenditures and net worth.


Some employers pay their employees wages on a regular basis. Other employers pay their workers a commission or a part of the price of any sales an employee makes. These payments are the workers personal income. It's not unusual for members of a family to have two or more jobs as sources of income. Sometime, every able bodied person is expected to contribute to the household income. Although there are laws against child labor in some developed nations, in other countries families may depend on their younger children to help provide for the family. Although there are various means of income, for most people, their job or jobs are the major source of personal finances.

Quality of life is often based on the amount of income individuals and families receive. Obviously, families and individuals that have higher incomes have better potential for a better quality of life than those with less income. The way income is managed determines quality of life more often than the amount of income. Family history, education and demand for an individual's skills and abilities are major factors that determine how much income an individual can make. Some other sources of income include retirement plans, investments and gifts.


Personal finances are used to get basic needs like food, shelter, healthcare and clothing for most people. Saving, giving and investing account for a part of some individual's personal finances. People also pay for leisure activities and luxury items like vacations, jewelry, expensive cars and vacation homes with the money they earn. The desire to have the newest and best products and services creates a constant struggle for many to live within their means while a few seem to prosper by having spending guidelines (budgeting) that help them have their wants and needs without financial difficulty.

Net Worth

The amount of cash on hand plus the value of any possessions minus all debt is an individuals net worth. When this number is positive it means the individual has enough liquid or hard assets to cover any debt. When an individuals net worth is in the negative it means he/she owes more than they have the means to pay. This indebtedness leads many people to bankruptcy. For this reason, many people avoid the use of credit cards and personal loans that are the source of debt and/or bankruptcy for many people.



Mar 19, 2011 9:51pm
nice post clearly defining each of the key personal finance terms
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