7 Things Everyone Should Know About Money
Our school systems don’t generally teach personal finance classes and most parents consider themselves unqualified to pass on financial lessons to their kids. Here are 7 basic principals people should know in order to navigate today’s financial world:
1. You have to earn more than you spend.
It seems obvious but, you have to earn moreÂ than you’re spending in order to come out ahead. Sure, short-term loans and credit card debt can get you through a crunch period, but on average, you have to bring in more than you’re shelling out to stay solvent.
2. Saving early will help you save more.
Einstein mentioned that the magic of compound interest is the most amazing principal in nature (of course I’m paraphrasing). The gist is that the earlier on beginsÂ putting money away, the more will accumulate, thanks to the growing powers of compound interest. Just make sure the money is in a vehicle that returns a higher rate than the REAL rate of inflation. (this is another topic in itself)
3. Diversification is your friend.
You’ve probably heard of the adage warning against putting all your eggs in one basket. Well, the same is true of investments. If you put your money in a single stock or even a single sector, you face a greater risk of losses if that sector faces hard times. That’s why financial experts recommend putting savings in diversified portfolios.
4. Protect yourself from scam artists.
Identity theft is a real problem in the financial services sector, and one of the best ways to reduce your risk of being a victim is by monitoring activity on your accounts. By reviewing your monthly account statements and checking for any charges you don’t recognize, you can quickly alert your bank if you see a problem. Then, the bank can replace your cards or account numbers if necessary.
5. Automate savings.
When savings are automatically subtracted from a paycheck or bank account and redirected into a retirement account,Â it’s easier to build up significant savings over time because you don’t have to think about transferring the funds. You also avoid the risk of spending the money before you save it. Many employers and banks make this kind of automation easy.
Minimize your debt load.
Debt isn’t always a bad thing; it can enable people to go to college or buy a home that they otherwise couldn’t. But people get into trouble when they take on more debt than they can handle, or fail to make their monthly payments on time. also consider ‘good debt.’ Good debt is borrowing at a low rate to invest in a higher returning investment vehicle and create a profit.
6. Track your credit score.
Â Your credit score is super important for getting mortgages and can determine a better or not so good interest rate. It’s important to check your credit report at least once a year at www.equifax.caÂ or www.transunion.ca.Â You can check for any errors and make necessary corrections.
7. You’re never done learning.
There are tons of financial services and new products. You really have to know which products will give you the best bang for the buck. To make sure you’re making the best decisions for your own finances, it’s a good idea to read up on different financial vehicles to see what is right for you.