When high school students hear the words “personal finance,” they most likely think of money or saving. But what is it really and why is it so important?

Contrary to the beliefs of many, there is much more to personal finance than just saving and investing.In fact, it is an important part of reaching financial goals, which can apply not only to the future but to the present, too.

Personal finance is made up of five main components: income, spending, saving, investing, and protection.

Income is money that is consistently obtained from employment or investments. This is the starting point for a person’s financial plan and essentially fuels all of the other components of personal finance. If a high school student has any source of income, it is likely from a part-time job.

Spending is the money used for all expenses. To practice smart personal finance habits, a person must control the amount of money they spend. A useful way to manage spending is by using the 50-20-30 rule: 50% on needs, 20% on savings, and 30% on wants. It’s important to control where your money is going as a student, as it can help you in the long run, especially for college.

Saving, particularly through a bank or investment plan, is one’s stored funds that are set aside for the future. Saving is useful for financial goals that can be reached in five years or fewer. Opening a checking account is an easy way to save because the funds are easily accessible, but most checking accounts have fairly low interest rates. A certificate of deposit is when a bank pays a certain interest rate in exchange for a set amount of money remaining untouched over a certain period. Using a certificate of deposit is beneficial because it entails no risks or fees.

Often confused with saving, investing is used to increase the value of an asset purchased. Although investing comes with many risks, it is often very rewarding in the end for those who practice sound investing principles. Bonds are simply loans from a corporation or the government that are agreed to be repaid at a future date. Stocks represent a percentage of ownership in a company, and their value can vary significantly with market upturns and downturns. A riskier investment is cryptocurrency, a form of digital currency that it is not backed up by a government.

It is important to protect yourself from unanticipated and unfavorable events in personal finance, as protection can help substantially during periods of financial volatility. Two products that can be useful against these financial risks are health insurance and life insurance. Health insurance helps protect a person from medical costs that are unexpected or high, and life insurance helps protect the financial wellbeing of a family in case the insured person dies.

For students interested in the subject, NASH offers Personal Finance, Finance and Investments, and Entrepreneurship, among other relevant courses. Personal finance is critical for a student’s future financial plans. Spending less than the income earned, being ready for any financial setback, and enabling existing funds to grow in value are the principles that will help student to lead stable financial lives now and in the future.