It can be difficult to determine how much you know or don’t know about money management. While you might think you have a strong knowledge base, these questions might point out some areas where you could learn more.
Try your best to answer the 3 questions below on your own, rather than diving into Google for answers or asking a friend. Then read through the answers below to see if you have a good grasp of the financials every adult should know or where you could use some improvement.
1. What does Compounding Mean?
You’ve likely heard this financial term, but do you know what it means? If not, here are the basics.
When you invest money in a financial institution, it earns interest. The amount of interest it will earn varies, depending on the type of account (we can advise you which account is best for your needs).
Over time, the growth on that initial sum earns interests too. This growth, therefore, can accumulate into an impressive amount, which is why we recommend that you start investing as soon as possible. Doing so enables you to have more time to receive the benefits of compounding.
2. How do Stocks and Investment Funds Differ?
If you don’t know the answer, then keep reading. Individual stocks are pieces of a company; when you buy a share in a stock, you get part of the ownership of that organization.
By doing so, you profit when the company profits. The opposite can happen too, obviously. Investing in stocks can be very lucrative but high rewards come at high risks.
Exchange-traded funds or ETFs, on the other hand, are groups of investments rather than single stocks. While both stocks and ETFs are up for trade on the stock market. ETFs give you access to a broad basket of shares that are managed by an investment manager.
Keep in mind though that exchange-traded funds are vulnerable to the same risks of market fluctuations as individual stocks. There are also benefits to choosing one over the other based on your personal financial needs.
3. What does a Good Budget Include?
The word budget gets spoken about a lot but what exactly does it include? A sensible budget covers the essentials, including:
- Housing costs (mortgage or rent)
- Food bills
- Utilities
- Percentage toward paying down existing debts
- Percentage for long-term goals, such as retirement savings
- Percentage for short-term goals, such as vacations
If you’re not sure what percentages to put toward your goals or have other budget questions, simply reach out to us; we’re happy to help you. Knowing the answers to financial questions like those above can improve how comfortable you and family are money-wise, now and in the future.
Tell us in the comments section below how you did at answering these 3 questions. Did you answer them correctly? Or could you use some help in understanding one or more of the areas, such as investing or budgeting?
Before you go:
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The information contained within this site has been provided as general information only and prepared without taking into account your financial position, objectives, and needs. You should consider its appropriateness and seek financial advice before making any financial decisions.