What Are the 5 Areas of Personal Financial Management?

Financial planning is for everyone, not just those with significant wealth to manage. Managing your personal finances is an essential tool for today and tomorrow. It helps you accumulate wealth during your working years and distribute it wisely after you retire. 

When you have a firm grasp on your financial reality, you can create a plan that helps you navigate the everyday and unexpected moments with confidence and security. 

Five categories feed into your personal finances as a whole, and each of them shape your financial planning and goals. Instead of thinking of these five areas as separate categories, think of them as adjoining building blocks that build a solid financial foundation. 

5 Areas of Personal Finance 

1. Income

In many ways, income is the first building block of personal finance. Income includes all of your incoming cash flow, from salaries or wages to investment dividends. To manage your own finances well, you’ll need to keep track of your income. 

You can use these figures to create a reasonable budget for your season of life, determine how much to save and invest, and create a plan for paying off debt. 

2. Spending

If income is your incoming cash flow, spending is your outgoing cash flow. For most people, the majority of their income is converted to spending. Spending is both essential (for things like mortgage payments, groceries, and recurring bills) and discretionary (for things like travel, shopping, and hobbies). 

Managing your spending is the most critical key to handling your personal finances wisely. This area can make or break your budget and help or hurt your ultimate financial goals. Ensure that your spending habits don’t exceed, or even match, your income, and you’ll be able to devote the remaining funds to the final three building blocks. 

3. Savings

Simply put, savings is the portion of your income that is not spent. Some refer to this as “deferred consumption” – in other words, you’re choosing not to spend some of your money now so that you can enjoy it later or access it when you need it most. 

Everyone, regardless of income level, should try to accrue savings for both planned and unplanned expenses. We recommend an emergency savings fund that will cover at least three months of expenses. Many people also choose to save for a particular additional expense, like a down payment on a home or a milestone vacation. 

However, once you have your savings account fully funded, continuing to add to it can actually hurt rather than help. Money that sits in savings accounts for long periods of time can lose value due to inflation. Once you have 6-12 months of expenses covered, it may be wiser to put the rest of your unused income into the fourth area of personal finance: investments. 

4. Investing

Technically, investments also require spending up front, but we categorize them differently from the spending category because these purchases allow you to earn more income in the future. This is known as a return. Most investments fall into one of these categories: 

Everyone invests because of the potential for a good return, but there are inherent risks. Some assets appreciate while others depreciate, and it can be difficult to identify at the outset which assets will go in which direction. If you’re unfamiliar with investing, it may feel risky or overwhelming – and if it does, a financial professional can help

At Marietta Wealth, we help many of our clients manage their investments. We are a fiduciary, which means we’re ethically bound to work in your best interest when it comes to your investments. If you’re interested in investing for the first time or looking for a new partner in managing your investments, we’d love to help you build a plan that works for your current reality and future financial goals.  

5. Protection

Protections are safeguards most of us use to shield our assets and save for unexpected costs. Common protections include:

Protections help us manage our risks. They also preserve wealth for life’s unexpected moments, as well as for the long-term future, including future generations who may eventually inherit what we have.

Managing Your Personal Finances with Marietta

At Marietta Wealth, we are here to guide our clients through many aspects of their finances.  We offer comprehensive Wealth Management services such as investment management or financial planning services, including retirement and estate planning.  We aim to be a full-service financial partner, working to help you build wealth, plan for the future, and reach your financial goals. 

We also provide one-time Financial Planning services that help us partner with you to create a solid plan and a brighter future.

To learn more about our financial services, reach out to us today. Our team would love to hear from you! It’s never too early – or too late – to create your personal financial plan. 

The information provided is for informational purposes only.  It is not intended to be used, and should not be used, as the sole basis for legal and/or tax advice.  Individuals should seek and rely upon the guidance and advice of their own legal and tax counsel before making any decisions regarding any planning, investment, tax concepts or strategies discussed herein.  Individual circumstances may vary and results discussed are no guarantees of applicability or future performance.

Marietta Wealth is a registered investment adviser.  Registration of an investment adviser does not imply any level of skill or training.  For additional information about Marietta Wealth’s financial planning and advisory services, please see the Marietta Wealth Disclosure Brochure or ADV Part 2A for full details, which is available upon request or by visiting our website.

Certain of our representatives are Certified Public Accountants with the accounting firm Ben H. Crowe, C.P.A., LLC which is affiliated with Marietta Wealth Management. To the extent that these representatives provide accounting services, which may include tax advice, to any clients, including our advisory clients, all such services shall be performed by those representatives, in their individual professional capacities, independent of our advisory firm, for which services we shall not receive any portion of the fees charged by the representative, referral or otherwise. It is expected that these representatives, solely incidental to their practices as accountants, recommend our advisory services to certain of their clients. No client of Marietta Wealth Management is under any obligation to use the accounting services of these representatives. Our Chief Compliance Officer remains available to address any questions that a client or prospective client may have regarding this potential conflict of interest.