7 Basic Finance Things EVERY HUMAN SHOULD KNOW
You are finance idiot if you don't know these.
7 Basic Finance Knowledge Every Human Must Have
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Why Financial Literacy Matters
1. BudgetingH3
The Need for Budgeting
Learning Resources for Budgeting
2. Understanding Debt
The Impact of DebtH3
Resources to Understand Debt Better
3. Savings and Investments
Why Save and Invest?
Tools for Learning About Savings & Investments
4. Tax Basics
The Importance of Knowing About TaxesH3Best Platforms for Tax Knowledge
5. Risk Management and Insurance
Why Insurance Matters
Reliable Sources for Learning About Insurance
6. Credit Score Fundamentals
Relevance of a Good Credit Score
Platforms for Credit Score Insights
7. Retirement Planning
Preparing for the Future
Resources for Effective Retirement Planning
Conclusion: Securing Your Financial Future
FAQs
In our ever-evolving global economy, financial literacy is no longer a luxury—it's a necessity. Why? Because having a solid understanding of basic financial principles empowers us to make informed decisions, protect our assets, and achieve our personal and financial goals. If you've ever thought, "I wish I knew more about finance," then keep reading. Here are seven fundamental financial knowledge areas everyone should master.
Introduction: Why Financial Literacy Matters
Imagine you're sailing on the vast ocean of life. Without the right navigational tools, you'd be lost, right? Financial knowledge is that compass. It directs us, ensuring we don't crash into financial pitfalls. It's essential for our personal well-being and security.
1. Budgeting
The Need for Budgeting
Remember when you planned a weekend getaway, and halfway through, you ran out of cash? Budgeting is about ensuring you don't run out of financial fuel. It helps you manage your money, ensuring you live within your means and save for the future.
Oh God… I struggle with this sthing in my family sooooo much because my father doesn’t like to keep track of his expenses… And guess what at the end of the month, he doesn’t know where his money went :)
He be like
:
Learning Resources for Budgeting
To get started, check out websites like Mint or PocketGuard. They offer user-friendly tools and insights on budgeting.
2. Understanding Debt
The Impact of Debt
Debt, when mismanaged, can be like a chain around your neck. It can limit your financial freedom and even affect your mental well-being. But, when used wisely, it can be a tool for growth.
In simple words: DEBT is actually paying of the money which is taken by you from someone. It might your bills paying for your electricity. And trust you won’t like to get a extra fees on it.
Resources to Understand Debt Better
Consider exploring National Endowment for Financial Education or Investopedia's Debt Section for comprehensive knowledge.
3. Savings and Investments
Why Save and Invest?
Picture this: you're planting seeds in a garden. Savings and investments are those seeds for your financial garden. They grow, and over time, you reap the benefits.
Investing in the Indian Stock Market is like planting a money tree that can grow over time. Think of places like BSE and NSE as big markets where you can buy parts of different companies. When these companies do well, your money grows. Here's why it's good: First, your money can grow faster here than if you just keep it in a regular savings account.
India's market has been doing well for many years because our country's businesses are growing quickly. Even if you don't know much about stocks, there are options like mutual funds where experts manage your money for you. This way, your money grows bit by bit, and over time, it adds up.
Also, with prices of things going up (like when veggies or petrol become more expensive), investing in stocks can help make sure your money doesn't lose its value. And don't worry! With new technology and support from the government, investing is now easier and safer for everyone. So, investing can be a smart way to make your money work for you.
Tools for Learning About Savings & Investments
Platforms like Betterment or The Motley Fool offer guidance on savings and investment strategies.
4. Tax Basics
The Importance of Knowing About Taxes
Taxes are like the weather - inevitable. By understanding taxes, you can maximize deductions and avoid penalties.
Taxes are like the yearly fees we pay to our government. Just like how we pay for electricity or water in our homes, taxes help the government run the country, build roads, schools, and hospitals. In India, every family has to pay some tax, especially if someone in the house has a job, runs a business, or buys certain things.
Some taxes are taken directly from our salaries, while others are added to the price of things we buy, like a new phone or car. It's important for every Indian household to keep track of these taxes and pay them on time. If we do, the government might even give some money back, like a small reward!
And nowadays, with online tools and apps, handling taxes has become much simpler. So, in short, taxes are a way every family contributes to making India better, and by being careful and smart about them, we can also benefit.
Best Platforms for Tax Knowledge
Visit IRS's official website or TaxAct's Learning Center to deepen your understanding of taxes.
5. Risk Management and Insurance
Why Insurance Matters
Think of insurance as your financial umbrella. It protects you during financial storms, ensuring you don't bear the full brunt of unexpected events.
Insurance is like a safety net for tough times. Think of it as a special savings account where you deposit a little money regularly, and in return, if something unexpected happens, like a big health issue or an accident, this account helps pay the big bills.
For a normal person, some basic insurances to consider are health insurance, to cover medical expenses; life insurance, to support the family if the earning member isn't around; and vehicle insurance if you own a bike or car. In India, the cost can vary, but a basic combined insurance package might cost anywhere from ₹10,000 to ₹25,000 a year, depending on what you choose and where you live.
Reliable Sources for Learning About Insurance
Check out Insurance Information Institute and NAIC's Consumer Resources to understand the ins and outs of insurance.
6. Credit Score Fundamentals
Relevance of a Good Credit Score
A good credit score is like a golden ticket. It can open doors to better interest rates, higher loan amounts, and even job opportunities.
Now, about Credit Score. Imagine it as a report card for your money habits. If you borrow money or have a credit card and you pay everything back on time, you get a good score. This score is super important because, in the future, if you want a big loan (like for a house or car), banks will look at this score. A high score can mean better loan deals and easier approvals. So, always paying bills and loans on time keeps this score high, making your financial journey smoother!
Platforms for Credit Score Insights
Resources like Credit Karma and AnnualCreditReport can help you monitor and understand your credit score.
7. Retirement Planning
Preparing for the Future
Retirement isn't just about stopping work; it's about living comfortably. Proper planning ensures you enjoy the fruits of your labor in your golden years.
Retirement planning is like preparing for a long, relaxed vacation in the future. It's about saving and investing now, so when we stop working or get older, we have enough money to live comfortably without relying on a monthly salary. It's super important because, as we age, we might have more health issues, and we'd want to enjoy life without financial worries.
How much is enough? Well, in India, it can vary. But many financial experts suggest that if you have savings that are about 20 to 25 times your annual expenses by the time you retire, you'd be in a good place. So, if you spend ₹5 lakhs a year now, aiming for a retirement fund of about ₹1 to ₹1.25 crore can be a good target. Remember, it's not just about saving, but also investing wisely to make your money grow over time. This way, you can truly enjoy the golden years of life!
Resources for Effective Retirement Planning
Dive into U.S. Department of Labor's retirement toolkits or explore Vanguard's retirement resources to plan effectively.
Conclusion: Securing Your Financial Future
Your financial health is as crucial as your physical health. By empowering yourself with these seven basic financial knowledge areas, you'll be better equipped to navigate the intricacies of the financial world, ensuring a secure and prosperous future.
FAQs
1. Why is budgeting important?
Budgeting helps you manage your finances, ensuring you don't overspend and can save for future needs.
2. How can I improve my credit score?
Regularly monitoring your credit, paying your bills on time, and maintaining a low credit utilization ratio can help.
3. Are all debts bad?
Not necessarily. Good debts, like mortgages or student loans, can be investment tools. Bad debts, like high-interest credit card debts, can be burdensome.
4. Why should I learn about taxes?
Understanding taxes can help you maximize deductions, save money, and avoid legal penalties.
5. When should I start retirement planning?
The earlier, the better. Starting early allows the power of compound interest to work in your favor.