What is Personal Finance? How to Budget, Save, and Build Financial Wellness.

What is personal finance? Here’s what you need to know to budget, save, and build financial wellness with confidence and clarity. 

Key Takeaways

Financial wellness starts with mastering your personal finances. But what is personal finance, anyway?

The term personal finance refers to short-money management like budgeting, saving and spending. It also pertains to your financial future: how you invest, plan for risks and emergencies, or build wealth over your lifetime. 

Why is personal finance important? It helps you manage your day-to-day needs – and plan ahead for future financial events. Here’s what you need to know to budget, save, and build financial wellness with confidence and clarity. 

 CHAPTER 1: Budgeting 

What is budgeting?

Simply put, budgeting is creating a plan for how you’ll spend (and save) your money. It involves tracking your monthly income and expenses, and strategizing how you’ll pay for the things you want and need. 

Why is budgeting important?

Budgeting is important because it helps you get the most out of your money. A well-designed budget ensures the bills get paid and keeps you on track towards your financial goals. 

Budgeting 101

There’s no one-size-fits-all approach to budgeting, but there are some universal basics. For starters, you’ll need to get clear on your monthly income and expenses. How much money is coming in the door each month – and where is it headed?


Net Income vs. Gross Income

Your gross income is your total compensation before taxes and other paycheck deductions. Your net income is your actual take home pay. This includes any money you pocket from side-hustles, commission, and work bonuses.

How to calculate your income

Understanding your gross monthly income will help you budget and plan for loans and lines of credit. If you’re a salaried employee, divide your annual salary by twelve to calculate yours (Ex: $40,000/year ÷ 12 = $3,333). 

If you’re paid by the hour, multiply your hourly wage by the number of hours you work each week, and multiply the total by 52. (Ex: $15/hr x 40 hours/week x 52 = $31,200/year) Divide by twelve to find your monthly gross income. 

You’ll also want to understand your net income, or how much money actually ends up in your pocket. To find yours, calculate how much money gets deducted from your paycheck each month and subtract this from your monthly gross income. 


Once you’ve identified your monthly net income, it’s time to take a look at your expenses. It can be scary to crunch the numbers, but it’s an important part of financial wellness. Calculate your fixed and variable monthly expenses to get a clear picture of how you spend money.

Fixed expense definition

Any bill that stays the same each month is considered a fixed expense. For most people, this includes rent or mortgage payments, phone bills, installment loans, and insurance premiums. Fixed expenses are predictable, which makes them easy to factor into a budget. 

Variable expense definition

Variable expenses change from month-to-month. They include things like gasoline purchases, credit card payments, home maintenance costs, and leisure spending. Since variable expenses are less predictable, it’s smart to budget on the high-end. That way, if you spend less, you can redirect that money to your savings account. 

Budgeting strategies 

Once you understand your personal finances, a budget helps you allocate your income wisely. Different methods work better for different people, but there are a few tried-and-true approaches. 

The 50-30-20 Budget

The basic rule of the 50-30-20 budget is to split up your after-tax income and spend: 50% on needs, 30% on wants, and put away 20% for saving. Of course, with rising costs of living and inflation rates, you may have to tweak the numbers based on your reality. 

Zero-Based Budgeting 

Zero-based budgeting earmarks every dollar you make – whether for bills, debt payments, leisure spending, or your savings account. The goal is that your income minus your expenditures equals zero by the end of the month. 

The Envelope Budget System

The envelope budget system is another time-tested method. It’s simple: label envelopes with specific monthly expenses – like loan payments, rent, or membership fees – and split your cash into each on payday. You can also take this system digital with envelope budgeting apps like Myvelopes and Goodbudget.

Best budgeting apps

Best budget app for young people

Mint is a simple, straightforward personal finance app great for anyone new to budgeting. Its easy-to-use money management features include: personalized budgets; automatic spend tracking: and financial goal-setting.

Best budget app for couples

Honeydue is a free app that makes it easy for couples to link and track financial accounts, collaborate on bills, and manage their shared spending and saving.

Best budget app for building credit

With StellarFi,, you can manage your bills on one platform and pay them on time. StellarFi pays your bills on your behalf, then reports your positive repayment history to credit bureaus to help improve your credit.  

Budgeting tips to improve your personal finances

What is personal finance? It’s making the most of your money – and budgeting is one of your most powerful tools. With a well-structured budget, you can identify ways to reduce your expenses, spend less money, and take control of your money mindset.

How to Reduce Expenses

Reducing your expenses creates extra wiggle-room in your budget. You may: cancel rarely-used memberships and subscriptions, switch to a better insurance policy, or refinance your credit card debt. 

How to Spend Less Money

Review your budget to determine where you’d like to spend less. Get an idea of how many times you order in, go shopping, or go out each week – and try to cut that number in half.  

How to Stick to a Budget

The best way to stick to a budget is to reframe your money mindset. Money is a mindset, so focus on the benefits of financial wellness: set clear goals; think more deeply about your spending; be more realistic with your needs and wants; and recognize the emotional benefits. 

CHAPTER 2: Savings and Investments

Why is it important to save money?

Saving money is central to financial wellness. It reduces the burden of unexpected expenses, gives you greater peace of mind, and helps you avoid taking on debt. A healthy savings account creates the financial freedom to pursue your goals and create your ideal future. 

6 strategies for building a savings account

  1. Automate your savings: Set up an auto-deposit to your savings account on payday. 
  2. Stash cash windfalls: Put extra cash, tax refunds, or work bonuses right into your savings account. 
  3. Stick to your budget: Our savings suffer first when we make a budget misstep – so take time to figure out which method works best for you. 
  4. Get a side hustle: Pick up a side-gig or monetize a hobby and send the extra income straight to your savings (even if it isn’t much).
  5. Reduce your expenses: Optimize your monthly bills and allocate the money you’ll save to your rainy day fund. 
  6. Start investing: Even if you’re a new investor, there are dozens of digital tools and platforms to put your money to work. 

Types of investments

  1. 401k: A 401(k) plan is a company-sponsored retirement account that employees can contribute to. Some employers even match your contribution!
  2. Individual Retirement Account (IRA): An IRA is an account with tax-benefits that allows an individual to save for retirement. 
  3. Money Market: Money market accounts are like a hybrid checking/savings. Generally, they earn more interest than a checking account, but limit monthly withdrawals. 
  4. Property: You may invest in a property with the goal of profiting off increasing property values or generating passive income by renting it out. 
  5. Cryptocurrencies: There is a growing demand for digital tender. Some cryptocurrencies have seen phenomenal lifetime growth, however, the market is still young and extremely volatile. 

How to Set Financial Goals

What is a personal finance goal? Any future goal that you need money to achieve. This could be purchasing a new car, improving your credit to obtain a home loan, or saving for a vacation. 

Qualities of an effective goal

When you’re setting a financial goal, it helps to get as clear as possible. That’s where S.M.A.R.T. goals come in.

  • Specific: Get clear on the details. Be as specific as possible. (Ex: I want to pay my credit card bills down to zero.)
  • Measurable: Set a specific amount to help you measure your progress. (Ex: I want to save $2,000 for a car down payment.) 
  • Achievable: Define how you will act to achieve your goal. (Ex: I will put $75 from every paycheck into my rainy day savings account.)
  • Realistic: Assess whether your goal is practical for your current reality. Can you simply reduce your spending, or will you need to win the lottery? 
  • Timely: Define your timeline. Include a starting date, end date, and any relevant milestones. (Ex: I will save $3,000 between June and December.)

How much should you save?

  • Emergencies: Saving for an emergency should be a priority for all households. Most experts recommend saving enough to cover three to six months of expenses. If you’re just getting started, even saving $1,000 can improve your financial wellness.
  • A big purchase: It’s standard to make a 20% down payment for a home or automobile, although it’s not always required. Though the more you pay up front, the less you pay on interest. 
  • A big event: Things like wedding and vacation costs vary widely. Use S.M.A.R.T goal-setting to set a realistic target. 
  • Retirement: ​​Most experts recommend an annual retirement savings goal of 10% to 15% of your pre-tax income. It may seem daunting, but you’re saving for your future self!

How to Build Credit by Saving Money

Do savings accounts build credit?

Savings accounts don’t build credit directly, but they improve your financial stability. This makes it easier to use credit responsibly, which benefits your score in the long run.

How a savings account helps you build credit

A healthy savings account makes it easier to stay on top of bills, even in a financial crisis. And if you use your savings to make larger down payments, you’ll pay less interest every month – making it easier to pay your debt.

Should you build your savings or pay more on your credit card?

While it’s good to do both, focus on improving your financial wellness. For instance, you’ll rarely earn more on savings than you pay on toxic debt. If you have high-interest loans and credit cards first, you may want to pay those down first. On the other hand, if your debt is very low-interest, building a nest egg could be the smartest first step.

Learn more: Should you pay off debt or save your money? Here’s what you need to know.

How to start saving money

Even once you understand what personal finance is and why it’s beneficial, it can be daunting to develop new habits. Keep these quick tips in mind to build your savings:

  1. Start small and don’t get discouraged
  2. Save what makes sense for you
  3. Cut spending and expenses where you can
  4. Pay off outstanding debts
  5. Save extra cash and income
  6. Resist the urge to dip into your savings

Read more: How to stop spending money

CHAPTER 3: Personal Banking

What is personal banking?

Simply put, personal banking is banking for people. It refers to all the services banks create and provide to individuals and families rather than businesses. 

How banking influences your personal finances

Banking centralizes your personal finances. Your accounts let you organize, track, and access your money. You can use different services to spend, save, and access lines of credit. Money in a bank can’t be lost or stolen like stowed-away cash – and you can even earn a small profit on your savings. 

How to choose a bank

Picking a bank can be daunting, and you may feel wary or reluctant – especially if your community has been harmed by financial discrimination. But choosing the right bank creates a strong foundation for financial wellness. 

Consider the following: 

  • Does the bank offer the range of accounts you need?
  • Do the checking fees and savings rates make sense for you?
  • Are there enough ATMs and branches for your needs?
  • Does the institution match your values?

What bank accounts do you need?

Checking accounts

A checking account is one that money flows in and out of regularly. But not all checking accounts are the same. You may have a regular-old traditional account, a premium account with added perks, or a special account if you’re a student, senior, or business-owner. 

Compare different types of checking accounts and benefits

  • Rewards and incentives: Some banks offer rewards for opening new accounts, as much as a few hundred dollars. Others may waive maintenance fees if you keep your accounts at a certain balance. 
  • APY: Some checking accounts earn interest, also known as annual percentage yield (APY). 

What is a Good Checking Account APY?

High-yield checking accounts pay interest for meeting transactional requirements. Most pay at least 2% APY with the top-payers exceeding 4%. The catch? You have to follow all of the requirements to earn your monthly interest. 

Savings accounts

You can’t answer the question “what is personal finance?” without understanding savings accounts. Savings accounts are a place to store money you don’t intend to spend immediately, and earn a little interest while you’re at it. 

Different types of savings accounts

You can keep your money in a traditional or high-yield account, money market, certificate of deposit (CD) or cash management account. Each has its unique perks and parameters.

What is a good savings account interest rate?

Current national average savings account interest rates are at historic lows, around 0.06%. But some online banks offer rates several times higher – so shopping around can be a smart personal finance decision.  

Simple vs. compound interest

Simple interest is paid only on the value of deposited funds. Compound interest is calculated based on the principal and all accumulated interest in the account. 

What does it mean when interest is compounded continuously?

Continuously compounded interest means there’s no limit to how often interest can compound. The balance is constantly earning interest, which is added to and increases the overall balance,  earning interest exponentially. 

Where to put money for compound interest

One good place to put money for compound interest is a Certificate of Deposit (CD). CDs are issued by banks and generally offer higher interest than savings accounts. In return, you agree to leave your money deposited for a certain amount of time. 

Using banking to help you budget

Banks aren’t just a place to keep your money, they can help you budget too. You can set balance alerts, automatic transfers, and even spending limits. 

Try the Three Account System: open one account for fixed expenses, another for savings, and another for variable spending. Divvy up your paycheck into each on payday.

Using online banking tools to build credit

Most banks offer online banking tools, which can be handy for building credit. Automated billing ensures you pay your bills on time, avoiding late fees and negative marks on your credit. Some solutions even turn automated billing into a credit-building tool. Check out Stellar to learn more. 

Recommended personal finance resources

Best personal finance podcasts:

Plug into podcasts like Planet Money, Stacking Benjamins, and Journey to Launch for tips to build financial wellness. 

Best personal finance websites:

Launchpad by Stellar, NerdWallet, the Balance, and the Penny Hoarder offer a depth of resources to help you reach your financial goals. 

Best personal finance books:

Your Money or Your Life, the Total Money Makeover, and the Psychology of Money are a few good reads to boost your financial literacy. 

TL;DR: What is personal finance?

There’s no one answer to the question “what is personal finance?” Every aspect of how you manage your money comes into play. When you budget wisely, set smart savings goals, and using banking to your benefit – you improve your financial wellness for the long haul. 

But all of that is only just the beginning. Using credit responsibility helps you build a positive credit history. And when you have good credit, you can access the funds you need – when you need them. 

Join StellarFi and prepare for liftoff

With StellarFi, you can build credit with the bills you pay each month already. Sign up and start building a positive credit history with your monthly rent, cell phone payment, and even that Amazon Prime subscription. 

Getting started is easy!

  1. What is budgeting?
  2. Best budgeting apps
  3. Savings and investments
  4. How to set financial goals
  5. How to build credit by saving money
  6. What is personal banking?
  7. Recommended personal finance resources


StellarFi (StellarFinance, Inc.) and its affiliates do not provide financial, tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own financial, tax, legal, and accounting advisors before engaging in any transaction. StellarFi receives a referral fee from the partners mentioned in this article.