How Much Do You Know About Financial Matters?
Financial Knowledge 101
In this article we will talk about some basic financial knowledge everyone should know about.
Once you know the basics about money, you will be in a much better position to manage your finances and avoid getting yourself into debt.
Banks
Depositing & Withdrawing Money
When you deposit money into your bank account you may not be able to withdraw it immediately.
For example, depending on your bank it may take up to 7 days for your money to clear before it is available to you.
Should you wish to withdraw this money after it has cleared, be aware that banks usually impose a limit on how much you can withdraw per day.
What this means is that you may not be able to take out all your money out at once. When dealing with large sums of money, you may even have to inform the bank of this beforehand.
Bounced Cheques
If you write a cheque but don’t have enough money in your account when the cheque is cashed, your bank will charge you for the cheque bouncing.
In some cases the bank may also charge the person to whom the cheque was written, which may result in them charging you to cover any bank fees they had to pay.
Compounding Interest
You will get the most return from your money if your bank compounds your interest daily, rather than quarterly, semi-annually or annually.
However if your interest compounds daily but your bank credits you quarterly, you will have to leave your money in the bank for at least three months before you will earn any interest on it.
Credit Cards
Credit Card Interest Rates
If you pay off your credit card balance in full and on time every month, then it doesn’t matter what sort of interest rate they charge as it only applies when you don’t pay off your balance in full.
However be aware of your credit cards interest rate, because if you don’t pay off your balance in full you may have to pay a lot extra on top of what you already owe.
Debit Vs Credit Cards
A credit card will allow you to spend a certain amount each month on credit, before you are required to pay back that amount.
A debit card only allows you to spend what you currently have in your account. Hence it debits your account.
However some debt cards have an overdraft, which allows you to a certain amount of money in credit.
Annual Fee Credit Cards
Some credit cards charge you an annual fee just for having the card. However most do not, so make sure you look around.
Cash Advance On Credit Card
If you take a cash advance on your credit card, be prepared to pay higher than normal interest rates to what your credit card normally charges. In most cases, there will also be an extra fee for requesting a cash advance.
Introductory Low Credit Card Interest Rates
Be careful when applying for credit cards that advertise low interest rates, as many of these will be introductory rates that are designed to get people to sign up.
After a period of time, usually 3-6 months, the interest rates will go up and may no longer seem so attractive.
Investments
Investments & Stockbrokers
A common misconception many people have is that you need a stockbroker to make an investment. This is not true, as nearly all investments can be purchased without a broker.
Pursuing investments independently can also work to your advantage, as you never know when the broker is working with their best interests in mind, rather than yours.
Of course this doesn’t mean you should never get advice or help with your investments, but rather to be aware of the advice you get which you have to pay for.
Risk Of Stocks & Real Estate
Whilst stocks can be quite risky, they can also give you large returns so you shouldn’t necessarily let this risk put you off.
In the case of real estate, this should be viewed more as a longer term investment. This means if you want to sell your property, you are going to have to wait for the housing market to recover to a respectable level before doing so.
Stock Market Fluctuations
The stock market will naturally fluctuate, which means there will be times when your stocks go up and times when your stocks go down.
The worse thing you can do is to panic and sell all your stocks when the market has had a big drop. Rather the reverse is true, as this is usually a good time to buy.
Retirement Plans
Retirements plans are generally considered to be a good investment, because the money in them grows tax free until it is withdrawn.
However if you choose to withdraw your money early from your retirement plan, you will most likely be subject to tax and a withdrawal fee.
Insurance
Car Insurance
Even though you may have some sort of collision or accident insurance on your car, if someone takes you to court you could end up having to pay a large fee.
In order to protect yourself from this, you need to have some kind of liability insurance cover which protects you from such lawsuits.
Insurance Assessment
Everyone who drives a car is not assessed equally for car insurance. Such factors which may be taken into consideration include your age, the type of car you drive and your previous driving history.
Generally speaking, if you are young and new to driving you will be charged more, and if you have had accidents in the past your insurance rate will also be higher.
Health Insurance
If your country doesn’t have a national health service, then not taking out some form of health insurance when you have the ability to do so, can turn out to be a very costly mistake should you become sick or injured.
However health insurance can be expensive, so if your employer does not provide you with it, make sure you look around for the best price.
Life Insurance
Life insurance covers the people who were dependent upon you in the event of your death. If no one is dependent upon you, life insurance is not necessary.
Other
Financial Advisors
Although you don’t need a financial advisor to invest or manage your money, having one may help you to avoid making foolish mistakes.
However, a bad financial investor could just as easily cause you to loose money, so make sure you get a good one.
Your Will
Many people think the best time to make a will is when they start working, and then update it when they retire.
This is not the best way to go about things, as your will should be updated with major changes in your life.
For example, a good time to update your will is when you get married, buy a house, get divorced, change job, have children and when you retire.
Rental Deposits
If you choose to rent a property the landlord will usually ask you for a deposit of one months rent. This is meant to cover any damage to the property while you are staying there, and will be returned to you if there is no damage.
Mortgage Rates
When buying a house, the longer your mortgage agreement is the easier it will be for you to pay it back. However a longer mortgage also means that overall you will end up paying back more than if you took out a shorter mortgage.
With shorter mortgages you may save money in the long run, but you need to make sure that you will be able to afford your mortgage repayments. So if you are in an unstable job, this may not be the ideal option for you.
