While it’s always good to learn more about personal finance, there are some topics that might be too complicated for you to comprehend. Here is a quick & easy guide to help you understand your money better, as well as the basics of personal finance.
What is a financial goal?
A financial goal is something that you want to accomplish in your lifetime. Your personal finance goals could be anything from paying off your student loans to finally buying that dream car.
In reality, no one has all their financial goals accomplished by the time they hit their 50s or 60s. Instead, it's about setting a few long-term goals and then working towards them over the course of your life.
While we can't predict what will happen in our future, it's important to set financial goals for yourself now so that you have a plan in place to reach them later on in life.
Why are personal finance terms important to learn?
Personal finance is one of the most important things to learn about. It’s a lot more complicated than you think, and learning it early on can help you build a healthy financial future.
When we learn personal finance, it allows us to understand our money better. It helps us figure out how much we need to spend and where our money is going. This knowledge will help us financially plan for the future and plan ahead for emergency events.
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How do I define my personal financial goals?
This is a big question. If you're still struggling to define your personal financial goals, you might need some outside help. Start with the following:
What are your short-term and long-term financial goals? - "Short-term" could mean anything from buying a house or car in the next year to saving for retirement 30 years from now. "Long-term" usually means thinking about how much money you will be able to save by the time you retire.
What are your monthly expenses? - For example, if your monthly rent is $1,000, then things like groceries ($400) and utilities ($300) might make up the majority of your budget.
How do I want to feel about my current financial situation? - Are you happy with how much money you have saved? Do you wish that you had more saved? Does it bother you that so much of your paycheck goes towards bills?
Budgeting and the importance of work-life balance
A lot of people don't spend enough time planning their spending and saving. They might not think it's important to do so, but they'll end up regretting that decision.
If you want to be financially independent, you need to create a budget and stick to it. It's also important to find creative ways to make your money last—like utilizing a no-fee bank account or working at home when possible.
One way that can help you attain a work-life balance is by investing in index funds for the long term. Index funds are the best investment for those who want passive income because they're low maintenance and provide steady yields with minimal risk of loss.
This guide should give you some insight into how your finances work, as well as show you how to set yourself up for success!
How much should I be saving?
The first step to building your savings is determining how much you should be saving. The average person saves $8,300 a year, which is about 10 percent of their income. However, that number can vary for everyone depending on personal needs and priorities. If you're trying to save for a big purchase like a house, it's important to budget the amount you need for that purchase over time.
Another thing to consider when figuring out how much money you should be saving each month is the number of people in your household. It's important not only to save more than what the average person does but also by how many people are living in your household.
If you're single and have no dependents, then the amount that you should be saving each month would be $2,700 or 15 percent of your monthly income. If there's one person in your household and they make enough money to support themselves and pay for all their expenses without taking on debt, then you should be able to spend 16 percent of their monthly income on savings as well as keep a similar lifestyle as them.
What is the difference between savings, investments, and spending?
Savings, investments, and spending are all concepts that relate to personal finance. But it can be difficult for people to understand the difference between them.
Here is a guide to help you better understand what each one means, as well as includes a few tips on how to manage your money.
- Savings refers to any money that you put aside in order to save up for something special or future financial needs.
- Investments refer to any investment made with the expectation of more than just a dollar return.
- Spending refers to any use of your income that isn't an investment or saving, such as bills and daily living expenses.
Understanding these three distinctions can help you better manage your personal finances and learn more about personal finance overall.
The importance of student loans
When you’re a student, you usually have access to loans and grants that allow you to pay for your education. These types of financial aid are typically awarded by the federal government or a state agency. There are several types of loans, depending on what your situation is.
First, there’s federal student loans which come from the government through direct lending programs like FASFA (Federal Application for Student Financial Aid). They offer low-interest rates and fixed monthly payments.
Second, there are private student loans which are available only to those who apply and qualify. They’re less expensive than federal ones with interest rates that start at 8 percent and go up to 18 percent as long as you make your payment on time. You can also get private loans with lower interest rates if you start paying down your debt while in school or within some other specified time period post-graduation.
Third, there are scholarships and grants which don’t require any kind of loan application process but might be too hard for some students to get because they don't have good grades or test scores. Scholarships can be easy to spot when you look online for them because they'll say "Scholarship" in the title;
The importance of retirement accounts
A 401k or IRA (Individual Retirement Account) is one of the best ways to build a retirement fund. You're able to contribute money that's tax-deferred, meaning you don't pay taxes on interest or investments until you withdraw them in retirement.
In order to get the most out of your retirement account, it's important you know what types of investments are available and how they work. To find out more about this, read the guide below!
The importance of debt repayment strategies
You're probably aware that you need to pay down your debts as soon as possible, but what exactly is a debt repayment strategy?
A debt repayment strategy is a way to pay off your debt through saving, investing or finding other work. There are three main types of debt repayment strategies: paying off the minimum balance first, paying more than the minimum balance and refinancing the loan.
Paying off the minimum balance first will be easiest for you if you have smaller balances on your loans and interest rates. If not, try paying more than the minimum balance. This will be easier for people with larger balances on their loans and interest rates. If you're still struggling with debt repayment strategies, talk to an expert about refinancing your loan.
The importance of life insurance
Generally, life insurance is something that people have on their minds. They're worried about what would happen to them if they died. But there are many reasons why you should consider purchasing a policy and not just living in fear of it.
Here are some reasons:
-If you die suddenly, your family can still survive with the money you've set aside for them.
-The cost of taking out a policy is often cheaper than funeral costs or other expenses that may come up.
-If you purchase term life insurance, your family will be able to live off the income from your investments until your children start earning income from work or other sources.
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.
© 2021 Eduardo Gonzalez