Personal Finance

As the saying goes, “Money makes the world go ‘round.”

Indeed, money plays an important role in our adult lives. At the same time, you may be ill-equipped to understand how to best manage your personal finances. On top of that, you may not know exactly how to improve your money sitch if things go south. In other words: You don’t know what you don’t know.

That’s why we’re going to break down the concept of personal finance for you and give you an overview of how to manage your money. We’ll also share tips and tricks to help you budget, save and understand how to use credit. Read on to learn everything you need to know about personal finance.

What is personal finance?

First, let’s start with that common term you may see a lot — personal finance. What does that even mean? Personal finance is a generic category that refers to how individuals spend, save and invest their money. The word personal is key here for two reasons. First off: It refers to the individual, which is different than say ‘corporate finance’. Secondly, it matters in a more nuanced way. It’s personal, meaning it relates to a specific individual in a particular situation.

Another word on personal finance

Although there are personal finance benchmarks — which we’ll cover below — money management is deeply personal and what works for one person will not work for another.
Personal finance advice has to be contextualized. It takes into account the age, income, lifestyle and family history of an individual. Additionally, there are other factors, like the cost of living, that need to be considered. All of this means that it’s a good idea to follow personal finance guidelines in order to get started, but you may want additional, individualized advice for your situation.

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What does personal finance consist of?

As a whole, personal finance is an umbrella term that covers a lot of ground. Basically, it’s a general category that contains a lot of subcategories. For example, personal finance covers the gamut of individual money management and focuses on:

  • Household Budgeting
  • Income
  • Savings
  • Spending
  • Credit
  • Debt
  • Investing
  • Taxes
  • Estate Planning
  • Insurance

As you can see, personal finance includes a lot of variables. That’s because nearly every part of your adult life is touched by money in some way. Yet, with personal finance knowledge, you can become empowered to use money as a tool for improving your life.

Why is personal finance knowledge important?

When you think of personal finance, you may not think it’s a riveting topic. It can actually be quite boring. Yet, regardless of your feelings about the subject matter, learning personal finance basics is important. Why? Because money is a tool that you can use to make your life better or easier. For example, think back to your last vacation. Remember how awesome it was and how relaxed you were? Money helped you make this trip happen.

Aside from all the fun stuff, money can help you get through life stages — like marriage, buying a home, having children, retiring, etc. Of course, no one wants to think of the bad stuff that can happen either, but you’d be naive to turn a blind eye and not consider them. Every day, emergencies happen. Your car’s engine may die, you might lose your job, or you could suddenly fall ill.

There are also more serious situations that require your attention and money, too — perhaps a parent needs round-the-clock care or you have to bury a loved one. These situations are heart-wrenching and unfortunately can wreak havoc on your financial life – if you’re not prepared.

This is why it’s important to know that money is a tool to help you navigate life. It’s not “scary” — but rather it can help you accomplish your wildest dreams and pay for the deepest unexpected tragedies. Personal finance knowledge can help you get your ducks in a row and prepare for the best and worst life has to offer.

Getting started with personal finance

You might think you’re “bad with money” but that’s probably not true. You likely just don’t know how to manage your money in a way that makes sense for your life. These concepts aren’t widely taught so it’s easy to go most of your adult life without a firm grasp on personal finance concepts.

Throughout this section, we’ll break down some of the cornerstones of personal finance topics. Take a look:

  • Income

In personal finance, your income is how much you earn from your job, side hustles, etc. It’s key to know your after-tax income as this will be the basis for your budget. This number is important to know as it is how much you are actually making and bringing home.

  • Budgeting

smiling lady holding credit card and laptopBudgeting is essential as this gives you a spending plan for your money. Your household budget will be based on your income and expenses – not anyone else’s.

So, if you take home $3,200 per month, you’d want to allocate every dollar toward your rent/mortgage, food, insurance, transportation, entertainment, saving, etc. To successfully budget, it’s key to ensure your expenses do not exceed your income — or else you’ll take a one-way road to debt. When you budget, you allot a specific amount of money toward each category. To make sure you are staying on budget, you need to track your expenses.

A good rule of thumb, created by U.S. Senator Elizabeth Warren, is the 50/30/20 rule. Under this model, you should keep your “needs” at 50%. Your needs are just what this sounds like — these are the things you need in life. They’re not luxuries; they’re key to your survival. So, think of things like rent, food and transportation.
The next 30% of your budget should be allocated to wants — such as restaurant spending, entertainment, travel, etc. The remaining 20% can be used for your saving and debt repayment.
The 50/30/20 rule may or may not work for your specific situation but is a good benchmark if you’re looking for a budgeting starting point.

  • Savings

Everyone should have savings! The money you save is set aside for your future. A good rule of thumb is to have three to six months worth of expenses saved up for emergencies. You also can save money for the fun stuff like travel, a new car, etc.

Not sure how to start saving? You can perhaps aim to save 20% of your income each month. If that’s not possible, strive for 10% or even five percent. Actively saving is a habit and something is always better than nothing. Remember: Your savings is money you set aside today for tomorrow. Using a money saving app can also be a great way of keeping your savings on track.

  • Spending

man taking money out of his walletIt’s important for you to know what your spending habits are in order to master your personal finances. Your spending includes all of your expenses. So, this means things you have to spend money on like rent and food, as well as your Starbucks runs or dinners out with friends.

To start, consider tracking how much money you spend for 30 days. This will give you a good idea where your money goes and show you what your highest spending categories are (such as retail therapy or eating out).

Knowing this can help you figure out where you need to cut back or what you should eliminate. Additionally, be mindful of your spending triggers as well. Spending triggers are things that may trigger you to spend more money. For example, do you end up spending more on food and drinks when you’re stressed out? Do you indulge in retail therapy when you’re upset?

Don’t worry: We all do this sometimes and we all have our triggers. Yet, being mindful of what causes you to spend in excess can help you master your behavior and cut down on your spending.

  • Credit

One of the things that lenders look at when deciding to approve you for a loan is your credit. There are two credit bureaus that keep track of your information: TransUnion Canada and Equifax Canada.

You can get your credit report from these credit bureaus to learn about your full credit history. It’s also important to check your report at least once a year to help you identify any errors or potential cases of identity theft.

The information in your credit report determines your credit score, which is a three-digit number that indicates your creditworthiness. In other words, what is your risk level and how likely are you to make payments? Your credit score is between 300-900 and you want to aim for a higher number, ideally 700 or above. Your credit score is determined by:

  • Your payment history
  • Total amounts owed
  • Your credit accounts
  • New credit inquiries

Managing your credit can help boost your credit score, which could help you get the most competitive interest rates. The best ways to boost your credit include making payments on time, keeping balances low and limiting new credit inquiries.

  • Debt

Your debt and credit are closely related. How much debt you have and your repayment history can affect your credit. Debt can include:

man holding credit card and iphoneThe categories above make up different types of debt, like debts paid back in installments, and debts paid back on a revolving basis.  

Installment loans are given out in a lump sum and you repay them over a specific repayment term. Popular installment loans are student loans and home mortgages.

Revolving debt, on the other hand, is debt that you pay back in different amounts depending on your charges. An example of revolving debt is credit card debt whereby there is no end to your repayment term and the debt revolves month to month. The amount you owe is dependent on how much you charge.

  • Investing

Building wealth and beating the cost of inflation won’t happen with simple savings. Investing in the stock market, however, can help you get greater returns. Your investing strategy and the investing vehicles you use should be based on your risk tolerance. Your risk tolerance refers to how much risk you are willing to take given your current situation.

You should consider your job, your lifestyle, when you’ll need the money, and other factors when thinking about how much risk you are willing to take with your investments. Although investing comes with inherent risk, some investment vehicles may be riskier than others, like stocks.

It’s important to understand investing terminology so you can educate yourself. Canada has a great list of investment terms and their definitions. So, start studying up and work with a financial advisor if you’d like assistance!

  • Taxes

Taxes can be a sore subject for most people but they should still be considered when it comes to your personal finances. It’s important to understand your after-tax income and know where you stand with your tax situation. When managing your money, think of paying taxes now and in the future and consider how this will affect your overall financial situation.

  • Estate Planning

One of the more complicated (and definitely less fun!) parts of personal finance is estate planning. Estate planning refers to how you want to distribute your money after you pass away. It’s kind of morbid to think about, but necessary if you want to take care of your family and avoid giving them a financial headache after you are gone.

As part of your estate planning you’ll want to consult with a lawyer, tax advisor and investment advisor. These professionals can help you:

  • Create a will
  • Appoint beneficiaries
  • Name a power of attorney
  • Appoint executors of your estate
  • Make sure you get the proper insurance, like life insurance

All of these topics and more should be handled with care by a certified financial planner. But the key is to make sure you are prepared.

  • Insurance

Insurance is a way to protect yourself and your finances. Look at your current situation and decide what types of insurance you need. Basic insurance includes:

  • Health insurance
  • Disability insurance
  • Life insurance
  • Car insurance
  • Home insurance

What you need to know to improve your own personal finances

By now you should have a greater understanding of all the things that make up personal finance. And, while it may seem intimidating, improving your finances and managing your money can be distilled into 10 simple concepts.

  1. Spend less than you earn.
  2. Borrow only what you need. Pay off your credit card in full and on time (that’s the most important part) each month.
  3. Keep your credit card balances low.
  4. Set aside at least 15-20% of your income each month for your savings. If you can’t do that, save something. Anything.
  5. Lower or eliminate your expenses if possible.
  6. Track where your money goes.
  7. Use the right financial tools like bank accounts, finance apps, brokerages and more. Look out for fees and read the terms and conditions.
  8. Get insured. Make sure you’re covered in all areas of your life in case disaster strikes.
  9. Have a plan for your money after you pass way.
  10. Build wealth by investing and saving for retirement.


Using these 10 tips, you can get started on improving your finances. These tips will also help you spend less, boost your credit, build wealth and protect your future!

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