What is personal finance? Is it investing wisely or buying the right mutual fund? While investing is an important piece of the puzzle, it is only one of the five pieces of a proper financial plan. Today, I will introduce the framework for personal finance and how the pieces fit together to provide financial stability and financial independence.


Let’s start at the beginning. Without income, there can’t be any saving. In each stage of our lives we should carefully consider the impact we can have on increasing income.

There are many ways to increase your earnings potential. Additional education and increased skills can certainly help, especially early in your career. When you are young and single, a second job is a great way to earn some extra income. You can also explore a hobby or a passion as a source of a second income. Diversity in your income sources is a great hedge against uncertainty.

Consider alternative sources of income as well. Does you residence have more than one bedroom? Consider renting one out for extra income. Like driving? Consider being an Uber driver!


Now that you have some income, let’s consider expenses. Obviously, if you spend 100% of your income, there is nothing left to save for the future. Start by paying yourself first. Automate your savings to a 401(k), IRA, or savings account. When you receive a raise, consider diverting a portion (or all!) into your savings account.

Take a hard look at your housing and vehicle expenses. These expenses can make up 20%-50% of your take home pay! If you get these expenses right, you have tons of room on discretionary expenses and, more importantly, saving for the future. I will explore some ideas for optimizing these expenses in a future post.  In the meantime, take a look at the shockingly simple math behind retirement.

Investing Wisely

Creating an investment plan and sticking with it through up and down markets is critical to your long term financial health. Down markets make us want to sell low and bull markets make us want to buy high. This is human nature. The key to investing wisely is find an appropriate investment mix that lets you ride out the bull and bear markets without altering your investment strategy. This investment mix will be different for everyone. If you don’t feel confident picking investments on your own, be sure to get advice from someone you trust like a CPA, CFP and the like.

Another critical aspect of investment is controlling expenses. I believe in low cost mutual funds and ETFs as the most appropriate investments for most investors.

Avoiding Catastrophe

Insurance is another crucial piece of the puzzle when building your wealth. Almost everyone can agree on the importance of life insurance to protect the ones we love. While not discussed as frequently, long term disability insurance is also important. Most employees have coverage through work, but self-employed professionals should consider coverage carefully.

No one likes to think about some of the other important legal documents like wills, powers of attorney and the like, but these are crucial documents. Nearly everyone should have a will, power of attorney for financial matters, power of attorney for medical and a living will. If you don’t tell others what you want to happen to your belongings or how you want to be treated in a medical emergency, no one will know what to do. In an intense situation, the last thing you want to do is cause more stress for your family! Get these things done! Today!

Optimize your lifestyle

Many of us know a friend or relative that saved their whole life and is afraid of spending their nest egg. Perhaps they never get the chance to live the life they dreamed because of health issues. You also probably know someone that spends money as fast as it comes in (and before it comes in!). No sense saving for tomorrow because “you can’t take it with you”, right?

I like to think there is a happy medium here to be found. The right mix of saving and spending will be different for everyone, but the point is, we need to be mindful for the future but not put off the fun today that makes life worth living.

While most people don’t think of “health” when they think of personal finance, the two topics are definitely related. It is crucial that we all find a balance between our work, health, and family that keeps us fulfilled. A good diet and exercise program can go a long way towards allowing us to enjoy our lives. Your future self will thank you!


If you’ve made it this far, congratulations! Understanding the framework of personal finance: your income, expenses, investments, insurance and lifestyle will help you live your best life. If you have questions on how to apply these concepts to your best life, feel free to contact me for a free consultation.

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