Almost everyone handles money on a daily basis, so it’s important to have an in-depth understanding of the fundamentals of financial literacy. Understanding these concepts can give you confidence when managing your money and help you reach your goals. We’ve identified the five financial basics everyone should know.
Understanding the ways in which debt can work for you or against you is an important piece in the foundation of your financial knowledge. Debt causes fear and anxiety for many people, but if you have a firm grasp on your financial standings and a plan to tackle the debt responsibly then debt can be an extremely useful to have in your financial arsenal. It can help you reach important goals and milestones like buying your first home or starting your own business.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein
There are two sides of interest – interest accrued on debt and interest accrued on savings. When you take on debt, you’re responsible for paying back the principal amount plus any accrued interest. This is how the lender makes money on the loan and it also provides the borrower an incentive to pay it back in full and on time.
On the other hand, when you put your money into a savings account, you can earn interest. The interest earned is added to your total savings, then interest is earned on the new, larger amount, and the cycle repeats. This is compounding interest, and it can be an integral part in growing your savings. Especially your retirement savings, as the longer the interest has to compound the greater your savings will grow.
3. The Value of Time
It’s never too early to start saving – for retirement, home buying, a child’s education, or whatever else may be coming down the line. Building your savings early allows you some wiggle room to indulge in the things that make life enjoyable, like travel or investing in a hobby, while still staying on track to meet your big picture financial goals. Having an emergency fund also comes in handy when life doesn’t go according to plan.
4. Investing for Security
Not investing your money can hinder the growth of your savings and make it much more difficult to reach your goals. A financial planner can help guide you in the world of investing. They can help mitigate fears by finding a risk level that allows you to sleep at night and giving you the knowledge that someone is in your corner.
5. Identity Theft & Safety
The world has grown more virtual, accelerated by the pandemic. Cybersecurity becomes more and more essential the more we move our lives online. Identity theft remains one of the biggest threats to financial and personal security.
This blog outlines some of the basic rules for staying safe while on the web.
While this is a brief overview of some important financial basics, it’s important to work with your trusted financial professional to explore these topics further. Remember to reach out if you have questions about any financial basics, and take this month to reevaluate your current financial knowledge as you identify potential areas for improvement.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.