4 Financial Concepts Every Adult Should be Familiar With – Trajan King
Financial Concepts

4 Financial Concepts Every Adult Should be Familiar With

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Financial literacy is key to staying on top of your finances and finding success later in life. Unfortunately, not everyone understands basic financial concepts and few are aware of how they can impact their life.

Indeed, MarketWatch reports a clear decline in financial literacy all over the country, with only 34% of Americans able to answer questions about interest rates, inflation, bond prices, financial risk, and mortgage rates.

Thankfully, becoming financially savvy does not require you to go back to school and take a business class. To help you, we have outlined four important financial concepts every adult should know.

Net Worth

Simply put, your net worth is the difference between your total assets and the amount of money you owe to lenders and financial institutions.

Knowing and tracking your net worth is important, especially if you aim to find financial stability in the immediate future.

CNBC notes that your net worth is essentially a big-picture snapshot of your financial health — showing where your money has gone in the past and helping you figure out where you want your money to go in the future.

Understanding what your net worth signifies can help you make goal-oriented decisions, especially when it comes to other financial concepts such as budgeting and investing.

For example, if you have a stable net worth to support your daily lifestyle, then you can afford to put more money in investments that will benefit you in the long run.

Budgeting

Most people are aware of what a budget is. However, not everyone knows how to create a truly effective budget that can help them reach their long-term financial goals.

Aside from having a defined budget, sticking to a monthly financial plan can also be challenging. To maximize your budget’s success, it’s best to use financial management applications like Mint and PocketGuard.

These apps can be connected to your financial accounts, track your spending, and generate personal financial insights ⁠— all of which can assist you in creating a budget that fits your lifestyle.

Credit Score

Lenders and banks use your credit score to evaluate your creditworthiness and ability to pay off a loan.

If you have a low (or non-existent) credit score, you may find yourself at the mercy of various financial institutions. This might get you declined when trying to access financial tools such as personal loans, credit cards, or even mortgages.

For this reason, it’s important that you understand how you can build and improve your credit score. Thankfully, building your credit does not have to be complicated. A

s outlined in Petal Card’s discussion on credit scores, simply paying off your loans on time, keeping track of your credit score, and only applying for credit accounts when needed can already boost your score.

With patience and a bit of commitment, you can have access to excellent financial tools and credit terms when you need it the most.

Investing

It’s not enough to just work hard for your money. If you want to be financially independent, you should know how to make your money work hard for you, too. You can do this by investing your hard-earned cash in various financial instruments such as stocks, index funds, or ETFs.

This way, you can also build your wealth and have an extra income stream that doesn’t involve much effort. However, it is important to note that investing isn’t as simple as giving your money to a certain company or asset class. Investing carries a certain amount of risk, and it’s vital that you educate yourself first with the ins and outs of the market before going all in.

By expanding your knowledge on these basic financial concepts, you help yourself make better financial decisions to benefit your lifestyle and security. If you want to deepen your financial understanding even more, be sure to check out our other finance articles here on Invincible Robots.

exclusively written for invinciblerobots.com By Kyla Gross

 

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