Anyone who wants to fully understand personal finance must begin with the idea that there are features personal finance is not. From this, you will be guided for sure.
There are tons of individuals out there who believe that personal finance and accounting are the same concepts. This is not true. They are very much far from each other.
Upon one look, they may appear to be the same since the two of them are involved with money. But then, when it comes to concentrating on their definitions, their differences may surely be properly comprehended.
Drawing the Line
According to Merriam-Webster, accounting is the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results.
As per the definition, it can be understood that accounting is known as the process of recording and analyzing what has been done with the money already.
With all of these in mind, to have an account is not enough when it comes to having your finances. Accountants are unlikely to concern themselves with their personal finance. There are just exceptions to the rule when it comes to this though. When your accountant is also dubbed as a financial coach or advisor, he or she will just take a look at what you have done with your money. This is undertaken in an annual perspective. Afterwards, a report analysis will be provided.
The report is typically the tax return. This refers to the amount you owe to the government or the number which the government owes you. It is quite rare for an accountant to give a Balance Sheet or an Income Statement or Net Worth statement. Such will not transpire. There are helpful tools which are necessary when it comes to effectively managing your personal finances.
On the other hand, personal finance is about focusing on your finances which may start from a pro-active and goal-oriented perspective. This offers accountants to have something to analyze, verify and record on their end. These are necessary of course.
Simplifying the Concept
When it comes to comprehending the definition of finance, there are simple ways to break down the concept:
- The process is about raising capital or funds for any sort of expenditure. It is also involved in generating an income. Basically, a business may derive money from sales of services and products. This may be termed as income or revenue. There are businesses that may enable it to become an investment of a portion of the revenue so that more income may be generated.
- The money may also be utilized to make purchases. This is all about spending money. How much is spent is normally what makes the difference here? It involves the optimum result down to the personal finances. At the end of the day, you have to make good decisions. These are all critical so that you may achieve financial wealth. This should occur regardless of the money you have.
Please take a look at all these when managing your finances.