It took me some time to get my head around the financial sector…so much jargon, so little time. But I couldn’t keep my head in the sand forever. It was time to take charge of my finances, to make my hard-earned cash work for me. The following three concepts helped me, and now, I hope, will help you, kick-start your financial journey.
Albert Einstein once declared compound interest to be the most powerful force in the universe. Although this is not true in physics terms, its effect on one’s personal finance is great. Compound interest refers to the interest earned upon your interest. Confusing? Well let’s break it down. Say you’re earning 10% interest on your bank deposit of $1000. You’ve just scored $100. The following month you’ll earn 10% on $1100, pushing your bank balance up to $1210. The longer you save up your interest, the faster you’ll earn some extra cash. Sweet.
While investing in shares may seem like something for finance professionals and business-owners, it’s something for everybody. Use your money to purchase shares in companies floated on the Australian Stock Exchange. You can make money in two ways – when the company makes a profit, the share price rises, as does the value of your shares. You can sell them at a higher price. And secondly, many companies pay a yearly or half-yearly dividend on each share you own. That can range from 5c to $1 per share. Easy money!
So much finance jargon! The terms assets and liabilities seem to get thrown around often, yet lots of people have no idea what they really mean! Let’s break them down. An asset is something that you own, including shares, a car bought outright, the goods in your home. A liability is something for which you are in debt, the money you owe to others. That includes the mortgage, the car loan and so on. Does it earn or cost you money? Your overall debt may impact your ability to get a loan. But the more assets you have, the better off your financial situation.
There are many more concepts left to learn. But these three key ideas should hopefully get you on the right track to building your finances right up. Because who doesn’t love a little bit of extra dosh?