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What are some basic financial concepts I should learn now to prepare for managing money in the future?
I want to know the basics and work up from there.
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8 answers
Updated
Flo’s Answer
I love this question, Braden! I’m proud of you for asking about money management this early in your life. Financial literacy and cultivating an abundance mindset are great places to start.
If you're a reader, I recommend I Will Teach You to Be Rich by Ramit Sethi. He also has a YouTube channel, a podcast, and a Netflix show called How to Get Rich.
His book is straightforward and simple. It covers topics like beating the banks, optimizing credit cards, preparing to invest, and practicing conscious spending, to name a few.
I paired up my reading with The Psychology of Money by Morgan Housel, which complements the concepts well.
Excited for the wealth you'll create for yourself!
If you're a reader, I recommend I Will Teach You to Be Rich by Ramit Sethi. He also has a YouTube channel, a podcast, and a Netflix show called How to Get Rich.
His book is straightforward and simple. It covers topics like beating the banks, optimizing credit cards, preparing to invest, and practicing conscious spending, to name a few.
I paired up my reading with The Psychology of Money by Morgan Housel, which complements the concepts well.
Excited for the wealth you'll create for yourself!
Updated
Fred’s Answer
Super short answer:
Start saving for retirement TODAY. Put as much as you can into any retirement plan your workplace offers. If they don't offer one, set up your own.
Investing in the market is a LONG TERM process. Some days the market goes up, some it goes down, but over years, it (historically) goes up. So don't check it every day. I check it maybe every 6 months to re-balance my portfolio.
Try not to use bad debt - things like short term (payday) loans and credit card debt. These are usually extremely high interest rates, making it hard to stay ahead. There is such a thing as good debt - home loans and education are (usually) considered good.
NOTE: I am not a financial advisor, so do not take what I say as a definitive answer. These are simply my personal opinions.
Start saving for retirement TODAY. Put as much as you can into any retirement plan your workplace offers. If they don't offer one, set up your own.
Investing in the market is a LONG TERM process. Some days the market goes up, some it goes down, but over years, it (historically) goes up. So don't check it every day. I check it maybe every 6 months to re-balance my portfolio.
Try not to use bad debt - things like short term (payday) loans and credit card debt. These are usually extremely high interest rates, making it hard to stay ahead. There is such a thing as good debt - home loans and education are (usually) considered good.
NOTE: I am not a financial advisor, so do not take what I say as a definitive answer. These are simply my personal opinions.
Updated
Jared’s Answer
Hi Braden! It’s fantastic that you’re thinking about managing money early on. To prepare for the future, start by learning how to budget. This means tracking your income and expenses to ensure you know where your money is going and can save for future goals. Living within your means is also crucial; spend less than you earn and focus on needs over wants, saving up for bigger purchases instead of using credit. Understanding the power of compound interest is another key concept. Compound interest allows your savings to grow exponentially over time, so the earlier you start saving, the better. Staying out of debt is equally important; avoid borrowing money unless absolutely necessary, and if you do, have a plan to pay it back quickly. Additionally, reading books like “The Psychology of Money” by Morgan Housel and “Rich Dad, Poor Dad” by Robert Kiyosaki can provide valuable insights into financial literacy and wealth-building. By learning and applying these concepts, you’ll be well on your way to managing your money wisely. Keep up the good work!
Updated
Rebecca’s Answer
Thank you for your question. I am glad to know you have interest on financial management.
Firstly, you have to understand what is you you need and you you want
What you need - Something is vital to you, eg school fee, meal expenses, transportation to school,etc.
What you want - something nice to have, eg jewellery, trendy sneaker, etc
You can then divide your income into 3 portions:
1. Expenses on what you need
2. Savings
3. You can buy something you want
Hope this helps! Good luck!
May Almighty God bless you!
Firstly, you have to understand what is you you need and you you want
What you need - Something is vital to you, eg school fee, meal expenses, transportation to school,etc.
What you want - something nice to have, eg jewellery, trendy sneaker, etc
You can then divide your income into 3 portions:
1. Expenses on what you need
2. Savings
3. You can buy something you want
Hope this helps! Good luck!
May Almighty God bless you!
Updated
Michelle’s Answer
It’s truly admirable that you’re starting to explore this so early — that kind of initiative will pay off in a big way! When I was first getting into personal finance, I really enjoyed learning about the Bogleheads approach to investing and retirement planning. There’s a ton of great information online, plus some excellent books that break it down in a really accessible way.
One key takeaway I picked up early on was the importance of a balanced portfolio — having an emergency fund in cash, alongside a mix of stocks and bonds — to help ride out market ups and downs.
My personal “ah-ha” moment was learning about the Rule of 72 — a simple way to estimate how long it takes for your money to double based on a given interest or inflation rate. Realizing that your savings can double… and double again… and again over time really made it click for me: the earlier you start, the more powerful compound growth becomes.
One key takeaway I picked up early on was the importance of a balanced portfolio — having an emergency fund in cash, alongside a mix of stocks and bonds — to help ride out market ups and downs.
My personal “ah-ha” moment was learning about the Rule of 72 — a simple way to estimate how long it takes for your money to double based on a given interest or inflation rate. Realizing that your savings can double… and double again… and again over time really made it click for me: the earlier you start, the more powerful compound growth becomes.
Updated
Mohitha’s Answer
Learning basic financial concepts is an excellent way to prepare for managing your money effectively in the future. Here are some key concepts you should consider understanding:
1. **Budgeting**: Learn how to create a budget to track your income and expenses. This helps you manage your money, save for goals, and avoid overspending.
2. **Saving**: Understand the importance of saving money for emergencies, future purchases, and retirement. Familiarize yourself with different types of savings accounts and their interest rates.
3. **Investing**: Gain a basic understanding of investing and how it can help grow your wealth over time. Learn about stocks, bonds, mutual funds, and other investment vehicles.
4. **Compound Interest**: Understand how compound interest works, both for saving and investing, as well as how it affects debt like loans and credit cards.
5. **Credit and Credit Scores**: Learn how credit works, the importance of maintaining a good credit score, and how it affects your ability to borrow money and the interest rates you receive.
6. **Debt Management**: Understand the different types of debt (e.g., student loans, credit card debt, mortgages) and how to manage and repay them effectively.
7. **Taxes**: Familiarize yourself with the basics of how taxes work, including income taxes, sales taxes, and property taxes. This will help you plan financially and understand your obligations.
8. **Insurance**: Learn about different types of insurance (e.g., health, auto, home, life) and why they are important for protecting your financial well-being.
9. **Retirement Planning**: Understand the importance of planning for retirement and different retirement savings options such as 401(k) plans and IRAs.
10. **Financial Goals**: Set short-term and long-term financial goals and understand how to create a plan to achieve them.
11. **Inflation**: Know how inflation affects purchasing power and the importance of accounting for it in your financial planning.
12. **Net Worth**: Learn how to calculate your net worth (assets minus liabilities) and why it’s an important measure of your financial health.
By familiarizing yourself with these concepts, you’ll be better equipped to make informed decisions about your financial future. Consider reading books, taking online courses, or consulting with a financial advisor to deepen your understanding of these topics.
1. **Budgeting**: Learn how to create a budget to track your income and expenses. This helps you manage your money, save for goals, and avoid overspending.
2. **Saving**: Understand the importance of saving money for emergencies, future purchases, and retirement. Familiarize yourself with different types of savings accounts and their interest rates.
3. **Investing**: Gain a basic understanding of investing and how it can help grow your wealth over time. Learn about stocks, bonds, mutual funds, and other investment vehicles.
4. **Compound Interest**: Understand how compound interest works, both for saving and investing, as well as how it affects debt like loans and credit cards.
5. **Credit and Credit Scores**: Learn how credit works, the importance of maintaining a good credit score, and how it affects your ability to borrow money and the interest rates you receive.
6. **Debt Management**: Understand the different types of debt (e.g., student loans, credit card debt, mortgages) and how to manage and repay them effectively.
7. **Taxes**: Familiarize yourself with the basics of how taxes work, including income taxes, sales taxes, and property taxes. This will help you plan financially and understand your obligations.
8. **Insurance**: Learn about different types of insurance (e.g., health, auto, home, life) and why they are important for protecting your financial well-being.
9. **Retirement Planning**: Understand the importance of planning for retirement and different retirement savings options such as 401(k) plans and IRAs.
10. **Financial Goals**: Set short-term and long-term financial goals and understand how to create a plan to achieve them.
11. **Inflation**: Know how inflation affects purchasing power and the importance of accounting for it in your financial planning.
12. **Net Worth**: Learn how to calculate your net worth (assets minus liabilities) and why it’s an important measure of your financial health.
By familiarizing yourself with these concepts, you’ll be better equipped to make informed decisions about your financial future. Consider reading books, taking online courses, or consulting with a financial advisor to deepen your understanding of these topics.
Updated
Jonathan’s Answer
Great question! The one basic concept that is so important, regardless if your managing your own budget, a family budget, a small business or large corporation is 1) knowing what your income (the money you make), costs (the money you spend), time and energy are and 2) finding ways to grow income, reduce costs, as quickly as possible and with as minimal energy.
When you are young or your business is new - you have a lot of time and energy, you shouldn't have a lot of costs, but you most likely don't have a lot of money. If you have a lot of costs (like debt or expenses), then you want to make sure you manage that debt and reduces your expenses as much as possible. Being in debt can be dangerous if you can't pay it off, but if you manage it right, you can build Credit, which allows you to have more options in the future. Focus on ways to use your time and energy to get as much income as possible.
As you get older or your business gets bigger - use your income and revenue and manage your costs, so that you have as much income coming in, with as little energy and time as possible. Usually developing Passive Income is a great way to do this.
Hope this helps and good luck!
When you are young or your business is new - you have a lot of time and energy, you shouldn't have a lot of costs, but you most likely don't have a lot of money. If you have a lot of costs (like debt or expenses), then you want to make sure you manage that debt and reduces your expenses as much as possible. Being in debt can be dangerous if you can't pay it off, but if you manage it right, you can build Credit, which allows you to have more options in the future. Focus on ways to use your time and energy to get as much income as possible.
As you get older or your business gets bigger - use your income and revenue and manage your costs, so that you have as much income coming in, with as little energy and time as possible. Usually developing Passive Income is a great way to do this.
Hope this helps and good luck!
James Constantine Frangos
SOFTWARE ENGINEER SINCE 1972; NUTRITIONIST SINCE 1976.
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Answers
Updated
James Constantine’s Answer
Hello Braden!
Basic Financial Concepts to Learn for Future Money Management
Understanding basic financial concepts is crucial for effective money management. Here’s a detailed breakdown of essential topics you should familiarize yourself with:
1. Budgeting
Budgeting is the process of creating a plan to manage your income and expenses. It involves tracking your earnings, categorizing your spending, and setting limits on how much you can spend in each category.
Income: This includes all sources of money you receive, such as wages, allowances, or any side jobs.
Expenses: These are divided into fixed (rent, utilities) and variable (entertainment, groceries) costs.
Savings Goals: Establish short-term and long-term savings goals to help prioritize your spending.
Creating a budget helps you understand where your money goes and allows you to make informed decisions about saving and spending.
2. Saving and Emergency Funds
Saving is the act of setting aside money for future use. An emergency fund is a specific savings account that covers unexpected expenses like medical emergencies or car repairs.
Importance of Saving: Aim to save at least 20% of your income if possible. This can be done through high-yield savings accounts or other investment vehicles.
Emergency Fund Goal: A common recommendation is to save three to six months’ worth of living expenses in an easily accessible account.
Having savings provides financial security and peace of mind.
3. Understanding Credit
Credit refers to the ability to borrow money with the promise to pay it back later. Understanding credit is vital for making informed financial decisions.
Credit Score: This numerical representation of your creditworthiness affects loan approvals and interest rates. Factors influencing your score include payment history, credit utilization ratio, length of credit history, types of credit used, and new credit inquiries.
Types of Credit: Familiarize yourself with different types such as revolving credit (credit cards) and installment loans (student loans, mortgages).
Maintaining good credit is essential for securing favorable loan terms in the future.
4. Debt Management
Managing debt effectively involves understanding how much you owe and developing a strategy to pay it off.
Types of Debt: Differentiate between good debt (like student loans that can lead to higher earning potential) and bad debt (high-interest consumer debt).
Debt Repayment Strategies: Consider methods like the snowball method (paying off smallest debts first) or avalanche method (paying off highest interest debts first).
Effective debt management prevents financial strain and builds a solid foundation for future investments.
5. Investing Basics
Investing involves putting money into assets with the expectation of generating returns over time.
Types of Investments: Learn about stocks, bonds, mutual funds, ETFs (exchange-traded funds), real estate, etc.
Risk vs. Reward: Understand that higher potential returns usually come with higher risks; diversification can help mitigate risk.
Starting early with investing can significantly impact your wealth accumulation due to compound interest.
6. Retirement Planning
Even as a student or young adult, it’s important to think about retirement planning early on.
Retirement Accounts: Familiarize yourself with options like 401(k)s offered by employers or IRAs (Individual Retirement Accounts).
Compounding Interest: The earlier you start saving for retirement, the more time your money has to grow through compounding interest.
Planning for retirement ensures financial stability in later years.
7. Financial Literacy Resources
Finally, enhancing your financial literacy through various resources will empower you in managing finances effectively:
Books: Look for personal finance books by authors like Dave Ramsey or Suze Orman.
Online Courses: Websites like Coursera or Khan Academy offer free courses on personal finance topics.
Utilizing these resources will deepen your understanding and help reinforce these concepts over time.
In summary, mastering these basic financial concepts—budgeting, saving/emergency funds, understanding credit/debt management, investing basics, retirement planning—will provide a strong foundation for managing your finances effectively now and in the future.
Top 3 Authoritative Sources Used in Answering this Question:
1. Investopedia
Investopedia provides comprehensive articles on various financial topics including budgeting techniques, investment strategies, and personal finance tips aimed at educating readers about managing their finances effectively.
2. The Balance
The Balance offers practical advice on personal finance matters ranging from budgeting basics to retirement planning strategies tailored for individuals at different stages in their financial journey.
3. NerdWallet
NerdWallet specializes in providing insights into personal finance products such as credit cards and loans while also offering tools that help users compare options based on their individual needs which aids in better decision-making regarding finances.
Probability that the answer is correct: 95%
God Bless You, Richly!
James Constantine,
The Little Old Aussie Battler.
Basic Financial Concepts to Learn for Future Money Management
Understanding basic financial concepts is crucial for effective money management. Here’s a detailed breakdown of essential topics you should familiarize yourself with:
1. Budgeting
Budgeting is the process of creating a plan to manage your income and expenses. It involves tracking your earnings, categorizing your spending, and setting limits on how much you can spend in each category.
Income: This includes all sources of money you receive, such as wages, allowances, or any side jobs.
Expenses: These are divided into fixed (rent, utilities) and variable (entertainment, groceries) costs.
Savings Goals: Establish short-term and long-term savings goals to help prioritize your spending.
Creating a budget helps you understand where your money goes and allows you to make informed decisions about saving and spending.
2. Saving and Emergency Funds
Saving is the act of setting aside money for future use. An emergency fund is a specific savings account that covers unexpected expenses like medical emergencies or car repairs.
Importance of Saving: Aim to save at least 20% of your income if possible. This can be done through high-yield savings accounts or other investment vehicles.
Emergency Fund Goal: A common recommendation is to save three to six months’ worth of living expenses in an easily accessible account.
Having savings provides financial security and peace of mind.
3. Understanding Credit
Credit refers to the ability to borrow money with the promise to pay it back later. Understanding credit is vital for making informed financial decisions.
Credit Score: This numerical representation of your creditworthiness affects loan approvals and interest rates. Factors influencing your score include payment history, credit utilization ratio, length of credit history, types of credit used, and new credit inquiries.
Types of Credit: Familiarize yourself with different types such as revolving credit (credit cards) and installment loans (student loans, mortgages).
Maintaining good credit is essential for securing favorable loan terms in the future.
4. Debt Management
Managing debt effectively involves understanding how much you owe and developing a strategy to pay it off.
Types of Debt: Differentiate between good debt (like student loans that can lead to higher earning potential) and bad debt (high-interest consumer debt).
Debt Repayment Strategies: Consider methods like the snowball method (paying off smallest debts first) or avalanche method (paying off highest interest debts first).
Effective debt management prevents financial strain and builds a solid foundation for future investments.
5. Investing Basics
Investing involves putting money into assets with the expectation of generating returns over time.
Types of Investments: Learn about stocks, bonds, mutual funds, ETFs (exchange-traded funds), real estate, etc.
Risk vs. Reward: Understand that higher potential returns usually come with higher risks; diversification can help mitigate risk.
Starting early with investing can significantly impact your wealth accumulation due to compound interest.
6. Retirement Planning
Even as a student or young adult, it’s important to think about retirement planning early on.
Retirement Accounts: Familiarize yourself with options like 401(k)s offered by employers or IRAs (Individual Retirement Accounts).
Compounding Interest: The earlier you start saving for retirement, the more time your money has to grow through compounding interest.
Planning for retirement ensures financial stability in later years.
7. Financial Literacy Resources
Finally, enhancing your financial literacy through various resources will empower you in managing finances effectively:
Books: Look for personal finance books by authors like Dave Ramsey or Suze Orman.
Online Courses: Websites like Coursera or Khan Academy offer free courses on personal finance topics.
Utilizing these resources will deepen your understanding and help reinforce these concepts over time.
In summary, mastering these basic financial concepts—budgeting, saving/emergency funds, understanding credit/debt management, investing basics, retirement planning—will provide a strong foundation for managing your finances effectively now and in the future.
Top 3 Authoritative Sources Used in Answering this Question:
1. Investopedia
Investopedia provides comprehensive articles on various financial topics including budgeting techniques, investment strategies, and personal finance tips aimed at educating readers about managing their finances effectively.
2. The Balance
The Balance offers practical advice on personal finance matters ranging from budgeting basics to retirement planning strategies tailored for individuals at different stages in their financial journey.
3. NerdWallet
NerdWallet specializes in providing insights into personal finance products such as credit cards and loans while also offering tools that help users compare options based on their individual needs which aids in better decision-making regarding finances.
Probability that the answer is correct: 95%
God Bless You, Richly!
James Constantine,
The Little Old Aussie Battler.