Finances can be scary, especially for young adults just starting out. It’s easy to feel like you need to know everything about money to have a good future. But even though it may seem like there are endless things to understand about personal finance, the truth is that there are only a few things you need to know. What those things are, however, is critical to your ability to succeed not just in the short-term but also in the long run. Financial knowledge is one of the best weapons we have against poverty and other difficulties related to money. So here are 6 financial facts everyone should know.
Table Of Contents
Credit Is Good — But Only If You Know How to Use It
Credit is a very powerful tool. It can help you buy a car or a home, pay for education expenses, and even start a business. Credit can be a wonderful thing as long as you use it with discipline and know how to use it responsibly. Credit is very dangerous when it’s used irresponsibly, however. Credit cards can be particularly destructive. Credit cards allow people to spend money they don’t have. This can lead to a debt crisis if the user doesn’t know how to pay the credit card company back. Credit cards are a very dangerous tool if they are not used correctly. You should only use them if you can pay them off in full every month. You should also keep the amount you charge each month as low as possible. Credit card companies make a lot of money off of people who cannot pay their bills. So if you do have to use a credit card, try to use one that charges a low interest rate.
Debt Is Bad — But Only If You Don’t Know Why
Debt can be a very good tool for people who have the ability to pay it off. Mortgage debt can help people buy a home, student loan debt can help people pay for school, and business debt can help people start a company. Debt is dangerous, however, if you don’t know how to pay it off. This can lead to financial hardship and even bankruptcy. Debt is bad if you don’t know how to pay it off. There are two types of people who fall into debt problems: those who are irresponsible and those who are unfortunate. The responsible person may have used debt to attend school or buy something they needed, but then something happened that made them unable to pay their bills. The irresponsible person has no or little reason for taking on debt in the first place. Some people use debt irresponsibly because they want to live beyond their means and feel like they can get away with it.
A Dollar Today Is Not Worth The Same As A Dollar Tomorrow
A dollar today is not worth the same as a dollar tomorrow. This is something that is easy to forget when it comes to investing. It’s also something that people who are trying to sell you something will be quick to tell you. They will try to talk you into investing in something that gives you a quick return today. This is because their gain comes at your expense. They profit by taking your money and offering you something less valuable in return. This is the basis for a Ponzi scheme, which is illegal in the United States and many other countries. An investment that pays you back quickly, however, is not always a bad thing. If you invest in something long-term, however, you will get much more money in the end. This is because a dollar today is worth less than a dollar tomorrow. Investing in something long-term, such as stock in a growing company, is a very smart way to make money.
Compounding Is Critical To Being Successful In Investing
Compounding is the reason that patience is a virtue when it comes to investing. This is the process of earning interest on your interest. The more times compounding happens, the more money you earn. This is why it’s so important to start investing early in life. If you start investing $100 per month when you’re 25 years old, you will have about $2,000 by the time you turn 65. If you start when you’re 35, however, you will only have about $600. The younger you start investing, the more compounded interest can help you earn more money over the long run. It’s also important to diversify your investment portfolio. If you only have a few stocks in your portfolio, losing one could decimate your earnings. Diversifying your portfolio makes it less likely that you will lose money.
The Rule Of 72 Can Help You Figure Out Rough Estimates In Investment Timing
The rule of 72 can be helpful in figuring out how long it will take for something to reach a certain amount. You simply divide 72 by the rate of return on your investment. So, let’s say that you want to know how long it will take to double your money. The rule of 72 tells us that it takes roughly 10 years to double your money at 10% annual return. This is only a rough estimate, though, and doesn’t account for things like inflation or changes in interest rates. It also assumes that nothing goes wrong in the economy that disrupts your ability to earn that return. It’s a good way to help you gauge when you’ll reach a certain amount, but not a good way to predict it down to the exact date. The rule of 72 is more helpful when you want to know how long it will take to double your money compared to how long it takes at a different rate of return.
Investing In Yourself Is Always Worth It
There are so many people who are quick to tell you that you should only invest in things that have potential to make money. They will tell you that things like education and your health don’t have any potential for profit. They are wrong. Investing in yourself is the one thing that will pay you back in both the short term and the long term. A healthy body is much more likely to find a job and earn more money than one that is sick. Good education also makes it more likely that you will succeed in job searches and make more money. Investing in yourself is always worth it. Health is the No. 1 determinant of how long you live. Education is the No. 1 determinant of how much money you make. Investing in yourself is always worth it. You can’t control the economy or how the stock market will perform. You can, however, control how healthy you are and how much effort you put into your education.
Conclusion
Finances are a scary subject, and they are even scarier when you don’t know what you’re doing. But the truth is, there are only a few things you need to know. Once you know those things, you can better manage your finances and reduce your chances of poverty. With these financial facts, you can protect yourself from making common money mistakes that could cost you in the long run.
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