One of the resources that we all deal with and have to manage wisely is money. It is this officially issued legal tender that we can use as a medium of exchange. Often issued as notes or coins, it also takes the form of instruments of negotiation such as banks checks. Every country has a unique design of money known as its currency. It differs in value from country to country. The flow of money around the society is directed by our actions. These are studied in a special discipline. Economics is the scientific analysis of human actions in relation to the choices we make and how we use the scarce resources that are around us. It is important to be well informed about these two factors. Here are 20 important things you need to understand about money and economics.
Important Things to Understand About Money
Not only is it the legal medium of exchange, money is a tool that we can use to improve our well-being and create a good quality of life. By using it, we can buy what we need and acquire what we want. Here are some important facts that you need to comprehend about money.
You Can Negotiate Your First Salary
Very few people negotiate with their employers about their first salary. According to studies that have been conducted, only 2 in 5 interviewees perform this negotiation. You should know that it's entirely possible to do this. It is actually advised that you try to get an increase in salary in your first job. This is because this increase pays off handsomely in future dividends. A 5% increase in salary when you are 22 years old can result in approximately $200,000 in dividends when you retire. Therefore, do your homework, be confident and negotiate better pay.
Check Your Credit Score
Everyone is provided with three credit score reports for free annually. It is important to know your credit score because it impacts how much money you have access to from lenders. A good credit score can help you to get loans that have lower interest. Examples of these loans are mortgages, car loans, premiums for your insurance as well as the rewards from credit cards. If you find that your credit score is low, there are many ways to improve it so as to enjoy greater access to money when you need to borrow some.
Create Some Savings for Emergencies
An emergency fund is a very important one to have. As soon as you get some employment, begin to save for emergencies. It has been observed that only one in three young people have some money saved to cover an emergency. Examples of emergencies include a visit to the hospital due to unforeseen illness, damage to your car and covering your living expenses in case you lose your job. An emergency fund prevents you from falling into too much debt in case you encounter these misfortunes. Begin to create your emergency fund as early as possible. It should cover between three and six months of your living costs in case you lose your job.
Invest in Your 401(K)
Modern companies offer a plan known as the 401(k). It is designed to help you save some money for your retirement. Just like any other corporate financing plan, it comes with multiple pages of paperwork to read and understand. Many people find it hard to go through all the content. Basically, the paperwork indicates that you should make your contributions as large as possible, reduce your fees as much as you can and have a diverse investment portfolio. If you do this consistently over the years, you will have a 401(k) plan that is solid and that caters to your needs in retirement.
You Can Prevent Debt by Giving Attention to Your Expenses
Two people out of every five have debt from their credit cards. In addition to that, a similar ratio have debt arising from their student loans. Both types of debt can be prevented. They can also be covered if you stay diligent and pay them off as soon as you get the opportunity. You can overcome student debt if you begin to pay it off as soon as you graduate. When you get a job, their are some specialized programs that you can enroll in so as to help you pay off your student debt. Credit card debt can also be paid off by first moving your highest interest credit card balance to a credit card that has a low rate. After that, you can pay off the small balances first before moving to the higher ones.
You Can Begin to Plan for Your Taxes as Soon as You Can
Also known as tax strategy, this is a method to ensure that you are paying as little tax as possible. In this way, you are able to free up as much money as you can for expense and investment purposes. There are tax benefits that you can begin to use as soon as you graduate from college. For example, there is a tax benefit that indicates you can reduce the expenses that you incur when moving due to a job as long as you move in excess of 50 miles from your current address. There are other tax benefits that allow you to receive 50% of the first $1,000 that you put aside for retirement annually.
The Two Main Ways of Investing in Residential Real Estate
One of the sectors that everybody is usually so excited to invest in is known as the real estate sector. There are two main ways to invest in this market. You can purchase a house and rent it out to gain some income. You can also purchase a house, live in it, wait for it to gain value over time and then sell it. The first method is straightforward. However, the latter requires that you purchase the house in a safe, attractive area and also maintain it. An important point to note is that your residential house will gain enough value to give you a profit after a minimum of five years.
Weddings That Are Expensive Normally Lead to Marriages That Are Short
According to studies, the average expense of a wedding in the U.S.A. is in excess of $26,000. Another study indicates that couples who have weddings that cost over $20,000 are more likely to divorce later by 1.6 times. The high expense of the wedding leaves the couple with either substantial debt or much less money in their savings accounts. To save money when getting married, pick a venue that is affordable or owned by the city. Also, invite your friends who have talent to cover activities such as decorations and catering for a small fee.
Plan Your Finances Before Getting Children
The average cost of raising a child until they graduate from college in America is $250,000. Therefore, its best for you to wait until you are financially capable before you proceed to get children. A good age to begin getting kids is when you are in your thirties. This is because you have a job and have already begun to pay for your retirement benefits. Thanks to the higher cashflow, you can also begin to save for their college expenses as well. There are vehicles such as the 529 plan to help you accomplish this.
The Road to Financial Freedom Is Long and You Are Your Only Competition
When it comes to money, it is very easy to begin comparing yourself to other people. Thanks to social media, the lives of other people are only a few clicks away. Thus, when you see others doing so much better than you, it is possible to begin envying them and desiring to live like them while you can't afford to. The negative effects of this are spending much more than you earn, debt and also getting depressed. Do not focus on the lives that other people are living on the social media sites. Establish some financial goals and strive to achieve them.
Important Things to Understand About Economics
This discipline studies us and how we decide to use our money. Moreover, the concepts of economics are visible and clear in small units such as families and in large ones such as nations. Here are some important things that you need to understand about economics.
There Are Two Main Types of Economics
The concept of economics is divided into microeconomics and macroeconomics. Microeconomics covers the behaviour of people for example how they relate to prices, margins and also incentives. On the other hand, macroeconomics covers items that affect large populations and geographical areas. These items include banking interest rates as well as the Gross Dometic Product (GDP). Managers find microeconomics very useful while investors find macroeconomics highly useful.
Economics Is Founded on the Law of Supply and Demand
This is the main principle behind economics. When the supply of something increases, its demand decreases. On the other hand, when supply decreases, demand increases. Demand and price of the item go together. This rule is applied in every sector of commerce today.
Marginal Utility in Economics
Marginal utility indicates that the more of something that you have, the less it is useful to you. For example, $100 is much more useful to you if you earn $1,000 every month than if you earn $1,000,000 every month. This concept is used by producers when they are pricing their products.
The Gross Domestic Product (GDP)
This is the measuring unit of an economy. The GDP can be considered equal to the combined income of all working individuals in the nation. It can also be considered the combined cost of all the products and services that are sold in the nation.
The Rate of Growth
The speed at which an economy grows is measured in terms of GDP growth rate. This rate is calculated annually. Since the GDP is literally the national income, the growth rate indicates how the income of the average person grows per year.
Many items today cost much more than they did twenty years ago. This is because of inflation. Inflation is a measure of the increase in the price of items from a previous time to today. This measure is given in percentages. Mature economies have an average inflation rate of 2%. This means that the price of items increases by this percentage annually. Central banks work to keep this percentage as low as possible.
The Rates of Interest
After giving a loan to someone, you can expect to get a little extra on top of the loan amount in return. This extra is known as the intrest. When a bank gives you a loan, they will indicate the interest rate to you. This means that you will pay back the loan with a little extra on top according to the interest rate that you are given. The central banks set the base interest rates that you should pay. These rates are also used to control the amount of cash in the economy.
Interest Rates and Their Relation to Inflation and Growth
There is an inverse relationship between interest rates and inflation. There is also such a relationship between interest rates and growth. When the central bank increases the interest rates, then inflation reduces. This is a good effect since it preserves the value of money. However, when inflation goes down, it means that the citizens have less access to fluid cash. As a result, they are unable to exhibit quick economic growth. Thus, the interest rates are a sensitive tool that is set amid much tension.
The government is often the largest spender in any economy. Its spending can affect the performance of the economy. The adjustments that it performs so as to adjust its spending are collectively known as fiscal policy. When it spends more, there is high inflation and growth. The reverse is true. By manipulating goverment spending, the economy can be maintained at a favorable rate of performance.
These are the cycles of booms and busts in the economy. Each cycle lasts for 7 years. At the beginning of a cycle, there is a rise in performance. This rise is known as the boom. Then there is a reduction in performance that leads to negative increment known as a recession. After that, there is an increase and the cycle begins again.
The Important Take Away
Money and economics go hand in hand. A firm grasp of both is highly required so as to be financially successful today. These principles can help you to learn all that is necessary to grasp both concepts. By learning them, you emerge financially wiser.