5 tips to understand how does money work

5 tips to understand how does money work

To master your money you don’t need expert investment strategies or a finance degree. It is necessary to have short-term and long-term planning and the discipline to stick to your plans. Here you will find 5 tips to understand how does money work. 

1. Find your own way to learn personal finances

As any other thing you want to be able to handle, understanding money, requires knowledge. The first thing you need to do is read a lot about financial concepts. This may sound difficult, but luckily there is an enormous amount of books, podcasts or blogs that will help you learn how to improve and matain your financial health. Whether you are a single millenial woman, a working mom or a college student, there is a book or blog for you. You only need to find the right one and get started.

2. Check your credit score and improve it 

To understand your overall financial health you need to check your credit score. Lenders, for example, will check this to know what your credit risk is, and whether you are credit worthy or not. A poor credit score can prevent you from borrowing money from traditional lenders or lead to higher interest rates. This is why it is important to check and be sure there is no innacurate information that can affect you negatively, find out if you have been a victim of identity theft, or find ways to improve your score if necessary.

Always keep an eye on your credit score 

3. Know Your Net Worth

Most people only pay attention to the money coming in and out of their bank every month. But that’s a really short-sighted way to look at your finances. Knowing your net worth is very  important. To know this you must calculate: assets (what you own) – liabilities (what you owe)

Assets include:
•    Money
•    Investments
•    Vehicles
•    Any other things of value you own

Liabilities include:
•    Student loan debt
•    Mortgage
•    Credit card debt
•    Any other money you owe

Start to pay attention to this as early as possible and always be working to increase your net worth.

4. Set Financial Goals

It’s important to set long-term and short-term financial goals.This helps you to determine your priorities and what you should be doing with your money every month. Analyzing your priorities and understanding how you need to adminístrate your money to accomplish these goals is the first step towards creating your budget. Different goals may include a new home, a new car o putting money towards an emergency fund, for example.

5. Check Your Finances Regularly

Checking your finances regularly will help you understand your financial habits. Being aware of where your money goes to every month can help you see how much money you spend without realizing it. There may be months where you go overbudget, but it should be a concious decisión and you should be able to make up for it the next month when this happens. 

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