Learning about Money- the Financial A, B, Cs

When it comes to learning about money there is so much information that it is challenging to know where to start. That is no excuse however for burying your head in the sand and making money someone else’s responsibility.

This simple guide outlines a few essential money principals.

Learning the financial abcs of money - chalkboard image

A is for Awareness

Typically people know how much they earn. Whether it’s by the week, month or hour, you know how much you earn and notice when something is different. But what about the other side of the equation? Do you know how much you spend?

Lack of awareness of spending can lead you to run out of cash, go overdrawn or rely on credit cards. Each of these has financial consequences. Being in charge of your money gives you a sense of wellbeing and control. A good place to start is by checking your bank statement, either online or a paper version. Go through line by line, can you identify each item? Many people find things they do not recognise or regular payments which they had forgotten about such as subscriptions. Maybe you accepted a trial offer which now is being charged?

Another example of awareness is being conscious over small regular amounts which you might spend every day. If you spent for example £5 a day on lunch, that may equate to over £1000 during a year. Would it be worth making a sandwich or salad at home and have £1000 for a holiday or other purpose?

B is for Budget

For many, Budget is a four letter word, but it need not be a negative. Taking a few minutes to plan what you are going to spend is a great step to putting you in control of your money and not the other way around. You can set a budget for any area of your life including fun and socialising. Many people find that by setting aside money for fun purposes means they can enjoy it more and be free of any guilt that they should be saving or spending the money elsewhere.

Setting a budget is a really simple task. Take a few minutes to list all the areas in which you spend money, then put your best estimate of the amount you currently spend next to it. When you add up the figures hopefully the total will be less than you earn. If not you will need to adjust the spending until it does. While you are feeling virtuous why not include a category for saving and reward yourself with a fun or play budget which you have to spend each month.

C is for Compound Interest

Einstein described compound interest as the eighth wonder of the world. The trouble is that it can work for you or against you. If you are paying interest on loans or credit cards the power of compound interest is increasing the debt and draining your current and future income.

If you have an outstanding balance on a credit card and just pay the minimum percentage each month it may take over 20 years to clear the debt! If you are only able to pay a fraction each month, make sure you are paying a fixed money amount rather than the percentage sometimes offered when you take out the card.

With interest so low at the time of writing there may seem like little incentive to save. This may be true in terms of financial gain from the savings alone, but the accumulated money saved can eventually be invested and grow at a better rate. The habit of saving money and living on less than 100% of your income is the important financial gain. http://credit-n.ru/offers-zaim/4slovo-bystrye-zaymi-online.html

How Saving Young Can Add Up Over A Lifetime

In times like these financial conversations are more common than ever. They are particularly important for those just starting out in their careers. The young generation of today has entered a battered workforce and economic turmoil. This article will discuss the importance of saving in your youth.

Compound Interest

Einstein is known for making the statement, “There is no greater force in the universe than compound interest.” This is certainly pertinent to this subject matter. Saving doesn’t have to be a matter of high salaries or inheritance, it is more important to have a disciplined steady approach. Someone who saves $100 monthly from age 25 to age 65 will have saved a total $48000.00  in 40 years time. These figures assume no interest gained in those 40 years.

Now here is where compound interest takes over. Now lets take that same scenario; $100 a month for 40 years assumed a 6% interest rate annually. Over that period of time your total would now be $200,144.82. Quite a stark difference you might say. Now let’s try to do this scenario with a 10% return; that would give us a total of $637,678.02! Your starting to get the picture now.

But why is it important to start early? Well simply put, your money will grow the most when it has the most time to compound. The example above is certainly impressive, but what if that same person started saving when they were 45 rather than 25? With the 10% annualized return they would have $76,569.69. A nice figure but nowhere near the $637,678.02 over 40 years. This should illustrate both the power of compounding and the importance of starting early. To compute your own scenario visit this compound interest calculator.

How do we find the interest?

So after exploring the scenario above you may be wondering how you achieve these rates of return. There is no simple answer to this. Currently interest rates on certificates of deposit and money markets are near 0%. These are the safest types of investments, but they do not provide much of return these days. The other options are stocks and bonds. These securities can be complicated to make money on even for an experienced investor. The best bet for a new investor would be a mutual fund.

A mutual fund is a collection of stocks and bonds that provide an investor with more exposure to the market. Instead of just buying one stock the investor holds shares of a fund, this fund can hold hundreds of stocks or bonds. This provides more diversification for the investor and more safety overall. Historically growth stock mutual funds have returned an average of between 8%-12% annually. For more information on investing options, check out Morningstar.com.

David Spader is a freelance writer and blogger who usually looks at savings account deals over at SavingsAccount.Org. His most recent review looked at the best saving account rates.