Personal Finance Lessons

Personal Finance Lessons that you should Learn at an Early Age

Learning about money, financing, budgeting, and investment is never late. In fact, these concepts should be taught at an early age. The basics of a financial course are so important that if you fail to understand, you will make financial mistakes in life.

Financial lessons such as the magic of compounding interest, credit scores, investments, interest on the debt and various other concepts are very important to learn. 

If you understand these concepts well then you can acquire money management skills. Here we present you with essential personal finance lessons that you should learn. 

Personal Finance Lessons
1. Basics of Budgeting
2. Magic of Compounding Interest
3. How Interest rates, Credit Card & Loans Work
4. Building Credit Score
5. Basics of Equity Investment
6. Managing your Bank account

1. Basics of Budgeting  

Budgeting is a very important skill that is useful in every aspect of life. It helps in managing and segregating bill payments according to your expenses priority and overcome financial hardships.

It helps in planning your lifestyle expenses based on your monthly income. The monthly or daily expenses that you can plan include paying for bills like rent, insurance, groceries, car payments, and other necessities. You can allocate your expenses and track each and every penny spent

Budgeting is like creating a path for your money to flow so that your spendings are fulfilled.

Check here: What is Budgeting and how to make a Budget?

2. Magic of Compounding Interest  

The major advantage of young people is income investing and time factor. Adding income into investment and compounding interest will increase the value of returns. 

Putting small amounts of money in high-interest savings accounts will build a wealth component with compound interest year after year. 

Compounding Interest is calculated on the principal amount and also on the accumulated interest of previous periods. It is creating interest. When compounding interest is applied to investments the accumulated income will be very high. This is the reason it is termed as magical compounding interest. 

3. How Interest rates, Credit Card & Loans Work  

You can get your Credit cards at the age of 18 years. At an early age, having a good knowledge of how credit cards and interest rates work will make you understand how credit money works. 

Credit cards give you money as credit. You can make any purchases using credit cards. You also earn reward points on every purchase. You have to pay the credit card amount   after a month. But if you do not pay as per the schedule you will be charged high interest which will work against you. 

Credit card interest accrues daily when you carry an unpaid balance on the card. Interest on a credit card will be huge on monthly statements if you are not paying your dues on time. 

It is smart to avoid paying interest. Use credit on your credit card by paying off your monthly bills.

Like credit cards, even loans have a high-interest rate. Loans are issued by banks and private lenders. There are different types of loans such as secured loans, unsecured loans/ personal loans, car loans, payday loans, and appliance loans. 

Personal loans are unsecured loans that are issued to those having good credit scores. Personal loans can be taken for home improvements, financing a wedding, shopping, and other Personal expenses. 

Check here: Best Credit Cards in UAE

4. Building Credit Score  

Financial health is determined by the credit score. Your credit score shows how well you manage your finances. If you have a healthy credit score you will get easy loan approvals and new credit card approvals. If you have a bad credit score you will find it difficult to get loan approvals and credit cards. 

At an early stage of life, you can get a Student credit card which will provide you an introduction to credit score. From there you can start building your credit score. Building a good credit score is so important as it will decide how much credit you should get. 

Loans and Credit card issuers look at credit score and decide whether to issue loans, credit cards to borrowers. Hence building credit score is a very important skill that you should learn. 

Check here: How to improve Credit Score?

5. Basics of Equity Investment  

An Equity Fund is a mutual fund that invests in equity stocks. Equity funds are also known as stock funds. These funds are investments in business sectors such as real estate, healthcare and commodities.

Investments is about how investors invest their money and how they gain (and lose) money. Investing in the right portfolio could make investors rich. 

A safe investment can be made by doing a good research on the company, reading reviews and having good knowledge of the latest updates from the company. With these basic steps, if the safe investment is made in a long term portfolio then returns will surely be high. 

6. Managing your Bank account  

You have to manage your Bank account, ensuring that sufficient funds are credited into the account. You should keep track of your transactions in the bank account and balance your Cheque book which is very much important.

Balancing a cheque book by sticking to debit and credit is very important. Managing cash inflow and outflow from your account and avoiding overdraft fees is the basic step to manage cheque book. 

If you do not track the inflow and outflow of cash in your account and if you issue cheques, the cheques you issued will bounce and you will end up paying penalty to the bank. It is best advised to learn the basics of cheque management and avoid penalties.  

Bottom Line

Personal finance is such an important part of our daily life that it is ignored. It should be taught at an early age in life and even parents at home should start teaching its importance to children. A positive difference should be brought by teaching financial basics at an early age. Financial education creates a good financial future because “When we know better, we do it better”.

Meet the author
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Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It’s a commercial mortgage banking company. He has a “Doctoral Degree in Commerce” and two master’s degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.



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