Personal Finance & the Rising Cost of Living (2024)

FAQs

What is cost of living personal finance? ›

The cost of living is the amount of money needed to cover basic expenses such as housing, food, taxes, and healthcare in a certain place and time period. The cost of living is often used to compare how expensive it is to live in one city versus another. The cost of living is tied to wages.

There's plenty to learn about personal financial topics, but breaking them down can help simplify things. To start expanding your financial literacy, consider these five areas: budgeting, building and improving credit, saving, borrowing and repaying debt, and investing.

Areas of Personal Finance. The five areas of personal finance are income, saving, spending, investing, and protection.

Understanding personal finance is key to managing money wisely and building a secure future. At its core, personal finance is about knowing how to handle your income, expenses, savings, and investments.

California has one of the highest state tax rates in the country, and this is reflected in the prices of goods and services in Los Angeles. Additionally, the cost of living for employees in Los Angeles is higher than in many other cities due to the high cost of housing and transportation.

#1 Don't Spend More Than You Make

When your bank balance is looking healthy after payday, it's easy to overspend and not be as careful. However, there are several issues at play that result in people relying on borrowing money, racking up debt and living way beyond their means.

Everyone has four basic components in their financial structure: assets, debts, income, and expenses. Measuring and comparing these can help you determine the state of your finances and your current net worth. You can think of them as the vital signs of your financial circ*mstances.

It says your total debt shouldn't equal more than 20% of your annual income, and that your monthly debt payments shouldn't be more than 10% of your monthly income. While the 20/10 rule can be a useful way to make conscious decisions about borrowing, it's not necessarily a useful approach to debt for everyone.

The 10% rule is a savings tip that suggests you set aside 10% of your gross monthly income for retirement or emergencies. If you still need to start a savings account, this is a great way to build up your savings. You should create a monthly budget before starting your savings journey.

Your net worth is your assets minus your liabilities. It's what you have left over after you pay all your liabilities. Net worth is a better measure of someone's financial stability than income alone. A person's income could be disrupted by job loss or reduction in work hours.

What are the 3 principles in managing personal finance? ›

At its core, personal financial planning and management should help you lay the groundwork for a secure financial future. Finance experts advise that individual finance planning should be guided by three principles: prioritizing, appraisal and restraint.

Personal finance encompasses the whole universe of managing individual and family finances, taking responsibility for your current and future financial situation, and setting financial goals. It also includes handling individual financial tasks and saving for emergencies.

Financial literacy — which generally means understanding money topics ranging from income, budgeting, saving and investing, as well as how interest rates work and why credit scores matter — is lacking among many U.S. adults, studies show.

According to Investopedia, “Personal finance defines all financial decisions and activities of an individual or household, including budgeting, insurance, mortgage planning, savings and retirement planning.” Understanding these terms can help you better control your funds and prepare for future financial success.

Cost of living data includes the expenses incurred for food, shelter, transportation, energy, clothing, education, healthcare, childcare, and entertainment.

Basic living expenses, as the name implies, are ones necessary for daily living, with main categories including housing, food, clothing, transportation, healthcare, and relevant miscellaneous costs.

Explanation: An example of a living expense is an expenditure that is necessary for day-to-day life, such as housing, food, transportation, and utilities.

Cost of Living. The amount by which incomes must rise in order to maintain a constant standard of living. Consumer Price Index (CPI)