Considering how important financial management is, it’s somewhat surprising to consider how little true education many people receive on this subject. While you may receive basic overviews at school, the ins and outs of the financial world are – for the most part – something that everyone has to learn for themselves.
This is inherently problematic. The world of finance is so large, so dominating, that many people immediately find themselves overwhelmed by the sheer volume of subjects they need to know about. As a result, people focus on what they need to know in regards to their own personal finances – how to manage a bank account, how to budget, and so on and so forth – and then move on. Modern life is busy and finance is complicated; as a result, exploring beyond the superficial is simply outside of the reach of many.
While it is possible to navigate life without learning the ins and outs of finance, there are potential downsides to this. A lack of information tends to mean you can be vulnerable to fine print and clauses you didn’t have the opportunity to read; and it can also mean that you are forced to miss out on ideas and concepts that may have the potential to substantially improve your financial future. Information is power, after all.
If you wish to improve your financial knowledge, then there are a number of areas that are well worth specific research. Below, we’ve put together a few suggestions that you may want to learn more about, as they may have a direct impact on your future finances.
Stocks and shares
The stock market is one of the most opaque areas of finance, full of confusing terminology, baffling practices, and a huge amount of risk. However, there’s no denying that learning the basics of how the stock market works can be hugely important for your finances.
The primary reason for this is due to investment opportunities. The stock market is one of the most common methods of investing money, and can be a great way to protect your finances for the future. However, the stock market is also inherently risky, and involving yourself in this area without a huge amount of research can have serious consequences.
Secondly, it’s worth learning about the stock market due to its influence on the rest of the economy. The health of the stock market is a key indicator of financial health; if it crashes, the rest of the economy is likely to go with it. As a result, learning to read the stock market and understand what influences it can help you to understand the ins and outs of the economy – and how it may impact your future finances too.
Cryptocurrencies are an interesting concept, but one that many people shy away from. There’s no denying that the subject can be confusing, due in no small part to how incredibly alien the entire idea is – this is money, but not as you know it.
If you have always avoided the world of cryptocurrency, it’s well worth learning more. There’s a decent starter guide here…
… but there’s plenty more to learn besides this – and it’s well worth doing so. Cryptocurrencies are likely to play a large role in financial management of the future, both as an investment opportunity and for general day-to-day purchases. More and more ecommerce stores are accepting cryptocurrencies as a payment method, and it is feasible that, in the future, frequenting websites to buy cryptocurrencies will not just be a niche financial behaviour – it will be standard for everyone. As a result, researching and learning more on the topic is a great way to ensure you are ready to adapt to the changing nature of modern finance.
If you borrow money, your APR is an all-important figure that is used to calculate your repayment rate. While most of us know what APR is, and that we want to ensure we have the lowest APR possible, the actual ins and outs of the different kinds of APR (and related rates, such as AER and EAR) tends to require additional research. There’s a primer to what these acronyms mean here, so it’s worth reading through, then scrutinising your existing credit agreements to ascertain which you are paying and how it may influence your future financial management.
Compound interest is a simple concept: it is interest that is paid on interest. When you are saving money, compound interest works in your favour. However, if you are in debt, it can be a nightmare.
Here’s a primer as to how it works, simplified. First, let’s establish a basic status quo:
- You owe £1,000 on a credit card.
- Your credit card APR adds £10 in interest to your credit card balance each month.
- Your minimum payment to your credit card is £20
Here’s how the above simplified figures work are influenced by compound interest:
- In January, your credit card bill is £1,000.
- You pay your £20 minimum payment
- This should mean that, in February, your credit card bill is £980
- However, your credit card company is going to add £10 of interest
- So your February bill is actually for £990
- You have therefore effectively “lost” £10
- To actually reduce your balance by £20, you would have to pay £30 due to compound interest
The above figures are an example, and will vary hugely depending on your APR and your minimum payment. If you are in debt, it is well worth calculating the impact of compound interest to see just how much this practice is costing you. When you know how compound interest is influencing the amount you owe, you should be able formulate a debt management strategy that ensures you are always paying off your balance, rather than just the interest.
By deepening your knowledge of the above areas, your personal financial outlook can be hugely improved. While researching financial areas may not be the most interesting of tasks you undertake, it could well be the most important.