Your financial literacy will affect the quality of your life greatly. But understanding the basics of your personal finances goes way beyond being able to get a job or knowing how to open a bank account. Being able to make a variety of financial decisions over the course of your life will entail your understanding of these financial concepts. If you don’t have a grasp of these concepts, you may end up in a perpetual financial abyss. Here are some of the personal finance concepts that you should read up on and gain an understanding of.
Today’s financial world is running on credit. It’s not just people or organizations that are indebted, but entire countries and governments are running on credit. Learn the basics of using a credit card, how you can use it to your advantage, and how to use it even when it’s not to your advantage.
Do you really understand how compound interest works? If not, then it indicates a real lack of financial control and you’re probably already in debt or at the mercy of creditors. Understand the fundamentals of compound interest and how it’s affected by principle amount, rate and time.
Risk is always involved in your personal finance, especially when it comes to investments. Taking calculated risks can help you increase your wealth and profit you in the long-term. Learn how to calculate risk and what the best ways are to assess financial risk so that you’ll be in a much better position to make investments.
Housing and Mortgage
Understanding how mortgage works and the basics of housing are important or else you’ll be caught in a subprime mortgage crisis. Understand the basics of mortgages and housing so that you can be able to afford a mortgage and live in the house of your dreams.
Taxes often seem incomprehensible and completely overwhelming, but if you understand the basics of how they work, you’ll be able to make financial decisions that help you save money. Knowledge of taxes will save you a lot of trouble and extra money, but it’s not something you’ll gain easily.
How you choose to budget your income isn’t as important as knowing exactly where you’re spending it. Unless you know where and how you’re spending money, you won’t be able to use any other information gained in your quest for financial literacy.
Understanding how retirement vehicles work can be the difference between retiring in your desired lifestyle and not being able to retire at all. Know how they work and how you can take advantage of them to save tax-free money for a comfortable future.
Not everything that you’re purchasing is an investment, so it’s important to grasp the difference between a depreciating and appreciating asset. Buying assets that will lose value over time such as cars is not necessarily a bad decision, but buying a car at the best price value will be a financial victory. Understanding the difference between a depreciating and appreciating asset will help you make better purchases.