Finance
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10 Essential Financial Basics

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Becoming comfortable, and well versed in the finical field will be crucial to your quality of your life.

If you simply do not know the fundamentals, and basics of finance, it will be hard to ever move forward, half of the battle is understanding what questions to ask yourself. The basics of finance go well beyond just opening a simple bank account, and getting a job, it is important to know about financial decisions you are making with the money you have earned, and how to get the most out of that. Applying these financial basics, could help you become wealthy, or if you do not pay attention, it could leave you in a perpetual financial bind.

Lets take a look at 10 essential financial basics:

10. Credit Cards

Credit cards can give you an extremely awesome cushion when it comes to monthly purchasing power. This is great for those big ticket items, to ensure you do not overdraft from checking accounts, and having this flexibility can add confidence when purchasing said items. Depending on how you choose to use your cards, it can be a asset, or liability, so there is a great deal of responsibility placed on the card holder. Make sure to become well informed about your cards perks, and benefits, and always pay your balance in full to ensure good credit scores, which in return will help making other purchases even easier when trying to get approved.

9. Risk

It is important to use your assets, and money you have to help invest so your money isn’t “dead”, just sitting there. The saying scared money doesn’t make money could not be truer in this sense, but this comes at a risk. Taking calculated risks is ideal, but taking huge risks, and trying to get rich quick can leave you retirement poor. Find the right balance, and make sure to do your homework before throwing money at anything long term.

8. Compound Interest

The true power of invest, and one of the easiest ways to make money is from compound interest. It is crucial to understand how this works, lets say you save $5 a day, roughly $150 a month, that totals to $55,000 after 30 years with out compound interest. If you save the same amount at 9% you will have about $275,000 after that same 30 year period. It is important to see just how much this tactic can yield, so saving monthly, and being patient can truly pay off.

7. Retirement Vehicles

401 (k)s and IRAs, can dramatically improve your retirement lifestyle. Using these options, and understanding how these tools work is paramount, because saving money tax free is very important, and a very essential part of basic financial literacy.

6. Index Funds

If thinking about entering the stock market, an very easy and low risk way to gain compound interest like we talked about before would be to look into index funds. This is a fundamental building block to financial basics, and should be implemented right away, it does not take much cash to get started, and going in the right direction.

5. Housing and Mortgage

Understanding the basics of house owning, and taking out a mortgage is should be another basic building block to add to your repertoire. You must understand how mortgages work, so find a solid loan and do not get stuck pr caught in another sub-prime mortgage crisis. Pro tip: do your homework.

4. Asset Management

Understand that some of your assets, like cars will depreciate overtime, and your land value, or house may appreciate, so calculate that into your asset portfolio, when trying to create a solid budget for future plans.

3. Emergency Fund

This could be the most detrimental of all of the basics, because life will throw some nasty curve-balls, and it is nearly impossible to predict what type of unexpected payments are needed. Having an emergency fund can help you become flexible in these type of situations so you do not need to borrow money with high interest rates that could end up crippling your future.

2. Taxes

Understanding how taxes work in detail can really help you later on, and making sure you are not getting gouged too much. Becoming tax savvy saves many people quite a bit of money annually, no reason why you cannot become one of those educated individuals. Keeping track of the important documents, will really help you out.

1. Budget

Knowing where the money you earn is going, could be the most important thing on the list. If you do not keep track of your spending habits it will be hard to cut back on unnecessary items and save. You need to spend less than you earn, sounds simple, but many dig themselves into a hole and ask what happened? Well, they probably did not realize just how much they were blowing through all month.

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