What is personal finance?

by Lisa Baker

Before defining what a credit score is, let’s start by defining a previous concept: personal finances. Personal finances help individuals or families manage their resources throughout their lives. These cover household income and expenses, but also include financial products or tools. 

As we said before, the main objective of personal finance is to help people make informed decisions that allow them to optimize their resources.

This objective encompasses a series of sub-objectives, such as having adequate protection against unforeseen risks, complying with taxes, having liquidity or obtaining sufficient resources to be able to invest in assets that improve the quality of life.   

Elements of personal finance 

Within personal finances we can find a series of elements that surely sound familiar to you, let’s see what they are! 

1. Income

They are all the resources or inflows of money that an individual has. Among them is the salary, the income received from the rental of a property, the sale of goods, among others. 

2. Expenses

Expenses are money outflows or payments for different concepts. For example, the payment of a rent and the purchase of food are within the expenses. 

3. Assets

They are the long-lasting assets that are available. An asset can be a house, a piece of land, or a car. 

4. Liabilities

Debts that we maintain with third parties, such as debt with a bank or with a friend. 

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