Why Is Personal Finance Important?

Why is personal finance important

Managing your own money can be overwhelming. Especially if you don’t understand how things work. If you’re here to learn how to be more confident in making financial decisions, you’ve come to the right place. You’re taking steps to gain personal finance skills, and that’s commendable.

Personal finance skills are essential because, without them, people can spend their entire lives working for money but never getting ahead.

This is why personal finance is important. Getting educated about all things money and how to manage your own financial household can lead you to success!

Let's delve into this topic in more detail!

What is personal finance?

Personal finance refers to how you manage your money as an individual or family. Managing your money includes how you save, invest, and budget. It refers to tax and estate planning, retirement planning, and insurance coverage as well.

Here are some aspects of your finances that need management:


Whether you have one or more sources of income, you have to manage it well because you likely have taxes to pay, as well as other deductions like health insurance and 401k contributions.

So, it's important to understand that your gross pay does not equal the amount of money available for you to spend. Your after-tax pay would be lower than your pre-tax income.


Your spending includes bills, rent, mortgage, shopping, groceries, debt payments, and donations. Do you constantly overspend or buy things you don’t need? Money management skills help you understand how much your monthly expenses are and help you budget within your income.


Having money put away for a rainy day can save you from taking on debt in times of emergency. Also, sharpening your personal finance skills can help you find ways to save whether you’re making a lot of money or not.


Investing grows your money for the future and helps you reach your financial goals quicker. There are so many ways to invest. And with proper financial education, you can choose the right types of investments that fit your needs, personality, and goals.


Debt is inevitable because you use it to buy cars, houses, and other assets. But when you take on debt, you need to understand how it affects your future spending and how to manage it.

Also, learning how to save for purchases rather than racking up debt can make a huge difference in your finances.

Retirement Planning

A comfortable retirement depends primarily on how much you have saved up to support you when that time comes. Whether your goal is to leave a legacy for your family or retire early, your actions on retirement planning now will greatly affect what you can or cannot do.


Providing for your family's financial security is an integral part of personal finance. Having enough insurance coverage and policies in place can provide peace of mind for you and your loved ones.

Why personal finance is important

So, why is personal finance important? Well, personal finance is necessary because it affects how well you can live your life. Nobody wants to worry about money all the time, right?

Although, according to the American Psychological Association report “Stress in America: A National Mental Health Crisis,” 64% of adults stated that money is a major source of stress in their life.

However, a proven way to combat stress and worry is by taking action. In this case, it’s gaining the skills and knowledge to manage your spending, saving, and investing. All of which can help you achieve your financial goals, whatever they may be.

When it comes to your finances, you’re on the driver's side. There's plenty of great advice out there to get you started – and since you’re here, you’re on the right track. Here are some examples of why personal finance is important:

Financial literacy leads to a healthier life

Having money management skills is one of the most important things you can do to live a healthy, happy, and secure life. Your level of understanding of the basics of budgeting, saving, debt, and investing impacts every aspect of your life.

So, if you’re taking action to gain the skills, then you're on your way to a better financial future and, ultimately, healthier life. Here are a few benefits of understanding your personal finances:

You learn good saving habits

Why is personal finance important when it comes to your savings? Well, one of the most important teachings of personal finance is disciplined saving. It’s all about developing the habit of saving consistently, whether you make more or less every month.

Understanding the importance of having an emergency fund and growing your money can also be the difference between being in debt or prosperity.

It encourages awareness and responsibility

Budgeting is a tenet of personal finance that promotes awareness and responsibility. It helps you look at your finances and actively manage them.

When you know how much money is coming in and going out, you make better-informed decisions about earning, saving, spending, and investing. What a win for the future you! So be sure to create a budget that's best for you and your financial situation!

It leads to a positive relationship with money

If you experienced poverty, you likely perceive money negatively. If you didn’t have good role models with regard to money, you’re most probably repeating the same money mistakes your parents taught you.

But when you understand the principles of personal finance, you can craft a better financial path for yourself and your family. All of which lead to a positive perception of money.   

It promotes financial stability

Knowledge is power. Understanding money management leads to smart financial decisions. For instance, if you know how credit scores work and maintain an excellent score, you will have an easier time applying for loans and getting approval for leases or mortgages than someone who doesn’t.

Having financial stability is a major reason why personal finance is important.

So, what happens when you don’t understand how your finances work?

Lack of financial knowledge affects your life negatively

Finances are one of the major causes of stress for adults. And below are some money problems that could be avoided with some basic personal finance knowledge.

Unmanageable debts

Again "why is personal finance important? Because learning about it and managing your money can help you avoid debt. Unmanageable debt can be maxed out credit cards, missing payments on your loans, and trouble keeping up with your bills.

Lack of savings

According to the Report on the Economic Well-Being of U.S. Households, 39% don’t have enough cash to cover a $400 emergency. And for most households, it would mean taking on debt to cover unexpected expenses.

Poor health or depression

Financial stress impacts a person’s health negatively. This is especially true for communities of color whose financial security is unstable. A Men’s Health article stated that “Financial stress is right up there on the list of things that can predispose a person to heart disease.”


Declaring bankruptcy damages a person’s financial profile. After bankruptcy, it would take years to rebuild credit. This is true whether the bankruptcy is a result of a lack of financial knowledge, poor financial choices, or emergencies like hospitalizations.

How to get started with your personal finance education?

So, personal finance is about managing your money to fulfill your basic needs and meeting your financial goals. Everyone’s money goal is different. There is no one way to get there either. But there’s only one starting point, and that is financial literacy.

You need to be able to understand how interests work when you take on debt. Or how to manage your spending and budget your money. When you’re confident about managing your finances, you’ll be able to recognize bad advice from good and make smart decisions. (We have a list of great questions to ask yourself about your personal finances).

Now that you understand why personal finance is important, here are some ways for you to get started increasing your knowledge of it:

1. Read personal finance blogs

You’re already here, so you’re doing just that. Keep exploring Clever Girl Finance. You’ll find many articles talking about financial challenges real people face and how to overcome them.

If you’re looking for particular topics such as budgeting, you can enter it on the search bar or look through the categories. There are a ton of frugal living blogs that can inspire you to become debt-free and be savvy with your money. Plus you'll learn a ton of fun money facts!

2. Gain insight from great books

Bola Sokunbi, founder and CEO of Clever Girl Finance, has written three books to help you take charge of your financial wellness. The first book, Ditch debt, save money, and build real wealth, shows you exactly how to save, budget, invest and manage your finances to build real wealth.

The second book in the series was voted one of the best investing books for 2020. Learn how investing works, grow your money, discusses how investing works, and how you can leverage it to build wealth.

Lastly, the Side Hustle Guide shows you how to create a strong plan to brand, market, and grow your business, increase your income and build generational wealth.

You can also find excellent book recommendations from these articles:

So, continue educating yourself about personal finance to learn about building wealth and achieving success!

3. Take courses

Clever Girl Finance courses are completely free! Go check them out and start where you’re struggling the most. You’ll find courses on mastering your student loans, destroying your debts, and how to budget for your financial situation.

And if you’re ready to start investing, let the investing bundle guide you in this exciting journey. It’s a collection of seven courses that teaches you how to plan, choose, and manage your investments.

4. Work with a professional

If you feel like you need it, don’t hesitate to seek help from a financial advisor, financial coach, or financial planner. They can help you communicate with creditors, create and implement a budget, plan for retirement or invest.

Make sure you find someone qualified whom you trust. You may ask for recommendations from friends, family, or colleagues.

Personal finance is important to your success!

When you understand how to manage your money, you can rise from financial challenges. This is why personal finance is important. You’ll be able to recognize opportunities and take advantage of them. And being responsible with your money can give you a whole level of confidence.

And no matter what your situation is right now, your financial goals are achievable. You just have to start. Be sure to follow us on YouTube, Instagram, and Facebook for finance tips and motivation!

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