Here are 5 essential financial concepts that every adult should master. Not everyone has to be an expert at all things finance, but everyone should at least master a few basic concepts.
Budget
Everyone should have a budget. Not everyone needs to be on a strict budget, but you should at least know your expenses and income, your goals, and how to get to them. Your budget is your roadmap to staying on track financially.
Keeping tabs on expenses and income will ensure that you always have enough money to pay your bills and meet your saving and investment goals.
Budgets can be as simple or as complex as you like, but all of them should be broken down into a few basic categories. Recurring expenses are just that. Think utility bills, groceries, and gasoline. Short-term goals would be things like vacations, holiday spending, and upcoming maintenance on your car. Long-term goals would be things like saving for a replacement car, a down payment on a house, or a major renovation project.
Debt
This sounds simple, but you should be able to define and manage debt appropriately. This means avoiding debt whenever possible and having a plan to pay down and eventually eliminate it.
Keeping track of debts and keeping them to a minimum ties into budgeting. Having a solid budget with a plan to reach your goals will help you avoid going into debt. For instance, setting aside money to replace your vehicle can mean that you won’t need to finance a car when the time comes to buy one. At least, you may be able to have a large down payment and finance much less than you would otherwise.
If you do have debt, however, then having a plan to pay it down is key. One popular method of debt repayment is the snowball method.
Credit Cards
Credit cards can be a tool in your financial toolbox. Some people are totally against using credit cards. Others advocate for them so they can reap rewards and perks from them. Whatever side of the fence you are on, you should understand them.
Many people get caught up using cards to buy things that they otherwise couldn’t afford. This can lead to mounting credit card debt.
If you do choose to use credit cards, then you should avoid carrying a balance. This ties back into your budget. Make sure that you only buy what you can afford to pay off in full every month.
Investing
You need to understand investing as part of your financial literacy. Investing is typically long-term in nature, and they will most likely be part of an employer-sponsored retirement program.
If your employer offers a retirement plan, then sign up and save up to the company match as a minimum. You can save more assuming your other financial goals are being met.
The world of investing can be complicated, and diving deep into different investment vehicles and strategies is beyond the scope of this article. Start with your employer’s plan, then you can seek professional advice as you continue to learn and accumulate wealth.
Picking a fund can be as simple as putting your money in a target fund. You don’t have to spend much time doing research on the different fund offerings.
Insurance
Having insurance will give you peace of mind that your property and your loved ones will be taken care of should something happen. Many people don’t have enough insurance to cover an unexpected event.
If you own a home and have a car, then you need to have enough insurance to cover an accident or an event. Don’t get caught having to finance repairs. It’s a good idea to reach out to your insurance company at least semi-annually to discuss any changes so you can have the appropriate coverage. Shopping for rates annually isn’t a bad practice either.
It’s also important to have adequate health insurance and life insurance. Many employers offer both, and this is something that you shouldn’t skip. One medical emergency could cost you hundreds of thousands of dollars if you aren’t insured. Should tragedy strike, then you want to make sure your loved ones will be taken care of if your income is no longer there.
Conclusion
Those are 5 essential financial concepts that every adult should master. The world of finances can be complex, and you will continue to learn your entire life, but you should start with the basics. Understanding how to budget, manage debt, credit cards, investing, and insurance will give you a solid foundation on your financial journey.
Read Also:
Protecting Your Family’s Health With Wise Financial Decisions
How to Start Understanding and Budgeting for Your Healthcare Costs
Secured vs. Unsecured Debt: What’s the Difference?
Overcoming Common Fears of Investing
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Based in the Pittsburgh, PA area, Brian holds full-time employment as a Warehouse Manager for an electronics firm. Brian enjoys wealth building, investing, gardening and the great outdoors. Brian holds a B.A. in Environmental Studies from the University of Pittsburgh and an MBA from Robert Morris University.
