Feeling clueless when it comes to money? You’re not alone.
In fact, roughly half of Americans can’t pass a basic financial literacy test, according to industry data. Stash conducted its own research and came to similar conclusions—40% of the 53,000 people who took our survey lacked an understanding of basic economic terms, like compounding and inflation.
While you can always bone up on your money-related vocab words, cultivating a deeper understanding of the financial world is essential if you hope to reach your long-term goals. That can include buying a car or house, starting a family, or even retiring one day.
What does it mean to be financially literate?
Financial literacy, or, what we call a basic understanding of baseline principles concerning money, is essential if you want the ability to honestly consider your financial situation, map out realistic goals, and develop a strategy to achieve them.
That can include making good daily decisions regarding spending, saving and investing what you earn, getting yourself out of debt, and avoiding unnecessary risks.
If you’re one of the millions of Americans wondering why these things weren’t covered during your high school years, it’s never too late to learn.
Here’s a quick rundown of some basic personal finance terms and principles that will help you catch up.
Learn to make a budget
Building a budget is step one on your path to financial rehab; Or at least understanding your own personal finances. A budget is a plan for your money, accounting for your income and spending, which will help you establish a plan going forward. And creating one is easy as pie.
Get started on your budget. Read: The Easiest Budget You’ll Ever Make
Get smarter about banking fees
You probably have a bank account, and you probably have a general idea of how a bank works. But not all banks are the same, and some will nickel and dime you with fees.
Are you paying too much in bank fees? Read: Bank Fees to Avoid
Be savvier about your saving
Saving — it doesn’t get much more straightforward than that, right?
Well, saving money can be tricky (re: budgeting!), and many people often conflate it with investing. They’re similar, but there are some differences. We won’t get all preachy and tell you that you need to save more, but more than one-third of Americans regret not saving more in the previous year.
You’ll want to review concepts like compounding and inflation while reviewing your savings goals.
Start saving. Read. Saving vs. Investing: What’s the Difference?
Learn investing vocabulary
You can quickly go down a rabbit hole when you start digging into the world of investing. The basic premise, of course, is that you’re trading your money for some other type of asset that will benefit you in the future. Or, in other words, you’re putting your money to work — by earning more money.
Put your money to work: What’s the Difference Between a Stock and a Fund?
Overcome “performance” anxiety
A portfolio is a term to describe your collection of assets, including stocks, bonds, and cash. Your portfolio’s performance refers to how the assets in your portfolio gain or lose value over time.
Learn more about investment performance. Read: What is Investment Performance?
It’s all in your hands
All of the above will help you get the ball rolling, but there’s a bigger, wider world of finance waiting in the wings. That includes the stock market, and all of the financial products and instruments that are traded on it.
Once you review and cement a foundation in the basics, you can dive into the deeper end of the pool, strengthening your financial knowledge and know-how.
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