Financial education is increasingly important with a lot of new investment products in the financial market. To be able to choose the right savings or investments and to avoid the risk of fraud you must be financially literate. If you are financially educated, you will be able to know how to save for your long-term goals or what product to invest in for expected returns. We are here to let you know the important basic concepts of finance that one must know for effective money management, to make informed financial decisions and achieve financial stability.

Budgeting

The first step in your financial planning is budgeting a process for tracking, planning, and controlling the inflow and outflow of your income. It entails identifying all the sources of income and taking into account all current and future expenses, intending to meet your financial goals. The primary aim of budgeting is to ensure reasonable savings after providing for all expenses.

Benefits of budgeting

• It puts checks and balances in place to prevent overspending at various levels
• It takes into account the unexpected need for funds
• It disciplines you in matters of earning and spending
• It helps you focus on your financial go

Setting a financial goal

Setting financial goal is important to become financially secure. The financial goal can be short-term, intermediate or long-term. Saving for short-term goals like planning a vacation or for long-term goals like buying a house, setting a financial goal is a must. Financial goals will help you save a certain amount as savings or invest in the right financial products in a planned manner. Realizing your financial goals through proper planning and money management makes you stay financially stable and secure.

Savings and Investing

A person should look to expense whatever is left after doing an investment related to his financial goals. Saving is the excess of your income over your expenditure. Generally, savings are in the form of savings bank accounts and cash. Your money is safe in a savings account, earning a small rate of interest and you can get back your money as and when you need it (high liquidity).

Whereas when you are investing, you are setting your money aside for your financial goals. It is normal for investments to rise and fall in value over time. However, in the end, prudent investments can earn a lot more than in your savings account. Learn more about savings and investment here.

Risk and Return

Risk and return go hand in hand, every investment you do is linked to a certain amount of Risk and Return. Higher the risk, higher the returns and vice versa. Risk can be defined as the probability or likelihood of occurrence of losses relative to the expected return on any particular investment. The good news is that investment risk comes with the potential for return which makes the activity worthwhile. The basic thing to remember about risk is that it increases as the potential return increases. It is known that the higher the risk, the higher the potential return. However, remember that it comes with no guarantee. Learn how to analyze risk and returns while investing here.