HomePersonal FinanceWhat are the Four Pillars of Personal Finance

What are the Four Pillars of Personal Finance

You want to do whatever you can to bring your finances under control. Living on a monthly budget may not sound fun, but you can take pleasure in watching your savings grow over time. Many financial profiles and budgets exist, and you must account for how a budget will fluctuate and morph over time.

1. Assets and Savings

Financial experts define assets as something that you own that you can turn into cash if needed. One of the most common assets in an individual’s portfolio is their home, but this only counts as an asset if you own it. While the home value does come included in your net worth, they reduce it if you have a mortgage on your home.

The mortgage amount gets subtracted from the home. Other assets that you might have include 401(k)s, cash in savings accounts, equity in the property, whole life insurance policies, antiques, and jewelry. While they do consider the car an asset under the four pillars, it has an issue in that cars depreciate over time. In some cases, you may owe more on a loan for a car than the value of the car.

2. Debts and Liabilities

No such thing as a good debt exists. You want to take measures to pay off your outstanding balances as soon as possible. Too much debt will hurt your credit score as well. In some cases, you get behind and need assistance to pay off completely. Going to a private lender to take out a personal loan to consolidate debt can help you to get your monthly budget in line by lowering your overall monthly expenses. In some cases, you need to get out of the hole that you dug, and this can help.

3. Types of Income

You can earn cash in many ways. To improve your income, you might look for alternative cash sources along with your job. Side gigs have become popular in today’s world, and you can make as much as you’d like. The five types of income include salary, rental property, capital gains, business income, and other sources of income. You can build your nest egg through having a few of these incomes or building up one or two of them. Each income may differ in how they tax it, so you will want to speak with a tax specialist on each type that you have.

4. Expenses

Expenses look at what you spend to operate a business or live your life. The expenses that count in the fourth pillar include shoes, clothes, gas, and rent. Anything, where you spend money, will count as an expense.

To understand your finances, you must figure your expenses into the budget. Taking all four of the pillars into account will make your finances easier to manage. You will live a less stressful life when you have control over your budget.

While you may find it difficult to put a budget together, the act will make everything clearer on how to proceed. You can stress less and enjoy your life more. Scrambling to find cash in an emergency can be disconcerting.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.



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