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3 Financial Concepts You Need to Understand Now

The key to financial success is to pay attention to your money. When you understand basic financial concepts, options open up. Even if you never plan to become a financial expert, you should understand the following concepts to maximize personal financial success.

 

Low Income Loans Australia is a site that helps low income earner access financial assistance through non-profits and different government financial initiatives. In assisting thousands of people each year, the below 3 concepts are often brought up.

 

Liquidity

Basically, liquidity is a term that refers to the accessibility of your money. Cash is considered liquid because you can grab it and use it right away. Retirement account funds, money in an IRA and equity in your home aren’t as liquid because it takes longer to access the funds. Money markets funds fall somewhere in the middle.

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When creating an emergency fund, it’s a good idea to have cash on hand as well as an easily-accessible bank account because you will need quick access to the funds during an emergency situation. Money in the stock market and retirement funds usually have some penalty or other process tied with accessing the funds.

 

Net worth

Think of your net worth like a money-health grade.  To determine your net worth simply subtract your debts from your assets. A very basic example: If you have $30,000 in savings and $50,000 in debt, your net worth is -$20,000. Having a net worth far into the positive is a sign of good financial health.

 

This is a great test to see how much you are improving your financial health as you pay off debt. When you hear of a celebrity having a net worth of $5 million dollars, it means that have $5 million in assets after their debts are considered.

 

Interest/Compound Interest

If you have a loan or credit cards, you’ve definitely felt the effects of interest. But, if you understand how it works you may be even more inclined to ditch accounts that charge interest and start investing in interest-bearing accounts.

Originally posted 2015-06-28 15:24:12. Republished by Blog Post Promoter