The management of large amounts of money, especially by governments or large companies and providing of funds all encompass the meaning of the word finance. It describes two related activities: the study of how money is managed and the actual process of acquiring needed funds. It encompasses the oversight, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems. No one is born with financial acumen per se, you gain knowledge about finance with age and experience.
Financial knowledge is important as you grow. As you become financially independent, it is important to invest your money wisely to gain long term and short term benefits. Along with investment there are many services that can take advantage of one’s lack of financial literacy. To avoid getting scammed you need to have some basic skills and knowledge about finance and investment.
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Here are a few guidelines to help you with learning financial planning:
- Budgeting – There are 3 steps to budgeting
– Figure out your income
– Figure out your expenses
– Create the budget so the amount of income will not exceed your expenses.
After working out on the various methods available for budgeting find one that suits you best and try and stick to it. You can also use budgeting tools like YNAB, Mint etc to help you make a budget.
- Understanding Interest – Interest can be used either as a savings tool or a tool to accrue debt. A small amount can grow to a large amount over a period of time. If you can avoid pitfalls and use the interest to your advantage, you will be able to grow your wealth exponentially as well!
- Understanding Debt – When your expenses exceed your income debt is incurred. To pay off the debt is by paying off the interest and the original amount you owe or else it’ll keep growing exponentially.
- Rules for estimating interest on the fly – It is important to know a few rules for estimating the interest so you know you are getting a good deal or not. These rules also help to estimate how much you are making from your savings.
- Credit score – 3rd Party agencies gather financial information about you based on your historical behaviors to determine your creditworthiness determines your credit score. The following factors affect your credit score
– Late Payments (or not paying)
– Debt to Limit Ratio
– Payment History
– Length of Credit History
– Age of Accounts
– Accounts sent to Collections
All of these can be converted into a numerical score and a higher score means that you are credit worthy and less likely to default on your financial obligations.
- Types of Accounts Holding Your Money – Savings Account/ Checking Account, current Account, DMat account, retirement account and others. These account hold your money from work, investments and any other source.
- Stocks, Bonds, Funds – These terms are used when you invest your money in them. Depending on what kind of returns you aim for these can be used.
- Inflation – Inflation is when goods and services increase in general level of prices year over year. It is measured annually and you can see how much through the CPI or consumer price index. This means, when goods and services rise, the value of your money is less. The same amount of money does not buy the same amount of goods or services as before. You will essentially have less purchasing power. Prices tend to rise year over year.
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These should basically cover all the major factors of finance if you are just starting out to learn about the field. There is much more for you to learn, to create stability and wealth for you and your family.