When you start your adult life whether you become independent or live with your partner, you must in some way be involved in the decision-making of household finances. There is no escape. Some of these activities can be to help budget planning, give advice or decide how to spend money, pay bills and achieve future goals. However, many people consider that it is not necessary to know how the interest works or how you can diversify your portfolio, as they prefer to leave that to the experts.
And we still wonder why our financial situation is not the best.
Why the basics are important
The main purpose of financial education is for people to be able to make decisions and use the financial tools that are available in the market.
According to experts, our aspirations regarding the relationship with money should be to learn to budget, live within our means, make use of financial tools, spend smartly and not excessively, save to be prepared for unforeseen expenses or emergencies, Prepare and predict the future and set financial goals.
It’s easier said than put it into practice, right? However financial education is our responsibility. Here we have 5 concepts with which undoubtedly every economically active person should be familiar.
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It is what can be bought today with a certain amount of money and that is directly affected by inflation. As time passes and with a constant rate of inflation, what we have today will not reach us to buy the same in the future, but less.
Value of money over time
Basically, it means that the amount of money you have today will not be worth the same in the future, even if it is the same amount. We have two examples for you to understand better.
If you receive 30 pesos today and invest them, at the passage of 1 year you will have the 30 pesos plus the return on investment. If on the contrary, those 30 pesos are given in a year, they will have lost their purchasing power and will not be worth the same as they are today.
It is the rate of growth of the price of products and services and makes purchasing power more expensive. Central banks make use of different tools such as monetary policy interest rates to keep inflation within certain levels.
It is the amount of interest that is obtained in an investment or are generated from a loan based on the capital that was made initially.
This is called the interest rate that is calculated from the capital and each month is added to capital and recalculates a new interest rate of the new amount of capital plus interest.
These are just a few basic concepts, of course, it is advisable to be aware of the financial tools, such as credit, investments, loans, etc., that can bring great benefits to your personal finances.