With the halfway point through the year practically upon us we thought it would be a great time to put together a blog on the most important aspects of money and finances. There’s a lot to know, to be sure, and we aren’t going to go in great detail with this blog (for time and space’s sake).
What we are going to do however is outline the most important 10 basics of personal finance to give you a good place to start. Enjoy
- Compound interest. One of the most important aspects of your finances you need to fully grasp is compound interest. Knowing how it works, and how it can increase your money greatly in the long run, is vitally important to building wealth. Working together, time and compound interest can turn a relatively small amount of money into a relatively large amount of money with very little extra effort.
- Credit cards. Knowing how credit cards work and, more importantly, how to use them correctly, is extremely critical. The fact is, credit cards can be a huge advantage in your life or, if used incorrectly, a gigantic disadvantage.
- Risk. Using your hard earned money to make more money always involves a bit of risk. In some cases, it involves a lot of risk. Knowing what those risks are and knowing how to take advantage of them when possible can mean the difference between retiring in comfort or… not.
- Depreciating assets. It’s important to understand the difference between an asset that can appreciate and one that doesn’t. For example, an automobile decreases in value over time. Yes, it’s necessary in today’s world but, because it depreciates, you need to be very wise when it comes to using your money when buying a car or any other asset that depreciates.
- Tax protection. As they say, the two things in life that are inescapable are death and taxes. However, there are certain things you can do to lower the amount that Uncle Sam takes from you every year, including 401(k)s and IRAs that protect your money from the tax man. Knowing how to use them and, more importantly, actually using them, is very important to your financial health.
- Home mortgages. For most people their home is the largest investment that they’ll make. Knowing how your home mortgage works, and what you can afford, are both lessons that many people learned the hard way during the recent subprime mortgage crisis.
- Index funds. A fundamental aspect of using the stock market in order to grow wealth is by using stock index funds, and thus knowing how they work, and the strategies that you can use to make them work better, will go far in helping you to become wealthy.
- Emergency savings funds. There’s an old saying about how, in every life, a little rain will fall. What that means is that everyone will have an unexpected situation or emergency once in a while. When it happens (and it will), if you have an emergency fund ready to help you, that emergency won’t mean financial ruin.
- Taxes. Understanding the basics of how taxes work, and the decisions that you can make in your everyday life that will help you to lower yours, is something that will save you an amazing amount of money in the long run. Knowing how they work will also help you to figure out which receipts and documents you should keep track of.
- Budgeting. Most financial experts will tell you that the most vital information you can know about your money is how much is coming in and, even more importantly, how much is going out on a regular basis. Being able to track your money and, when necessary, cut back on specific expenses for specific things, can give you the financial wherewithal and freedom you need to actually start building wealth.
Hopefully these 10 Commandments of finances have opened your eyes to what you need to know, and where you need to start, when it comes to keeping your house in financial order. If you have any questions or concerns about your finances you can always send us an email or leave a comment and we’ll get back to you with answers and advice.