3 Key Principles to Managing Your Money Better

Most surveys that are taken amongst teenagers in regards to financial literacy often lead one conclusion: it shows that their mastery in the subject of personal finances is poor.

However, several studies have also shown that adults are no better when it isn’t very difficult to actually manage one’s finances successfully, as they are based on very simple principles.

So here are three key principles that can help anyone manage their finances better, no matter how much they earn:

#1: Understanding the role of risk

It’s true that there’s risk in every investment yet there are some that are safer than other, while not promising greater returns. All you have to remember is that when you are making a risky investment, you should be aware of what is the worst case scenario.

#2: Understanding the Time Value of Money

Considering the paradigm which dictates that money in your hand right now is real and is better than money promised in the future. This is why money lenders often charge interest on not only your creditworthiness but also based on inflation, which more often than not erodes the value of the amount they’re lending you as well as the risk of whether you will be able to pay it back or not.

This is why it is important to stay in the green when it comes to your creditworthiness.

#3: Understanding Compound Interest

If there’s anything that you must understand about compound interest especially when saving – it’s over a few decades that the contributions made every month will seem very small in comparison to the returns that have been made over time.

The same thing goes for loans or especially in case of credit cards as if one is not careful in making payments, debts can balloon out of control as additional interest charges accrue over a period of time.