Take Charge Of Your Money With These Basic Concepts

Managing your money might seem like a daunting task, especially with regards to how much to save and what to invest it on. Many factors such as time or inflation add to this air of uncertainty by eating away at the value of your money. This is precisely why taking control of your finances is of 

prime importance on the hallowed road to financial security

Learning how to calculate the worth of your investment can go a long way in enabling you to take charge of your finances and make informed decisions on what you want to do with it. While financial planning calculators can be found aplenty on the internet, a firm grasp of a few basic financial concepts have proven to be extremely useful when it comes to devising a plan for your wealth.

Compound interest is one such concept and has long been considered the cornerstone for sound financial planning. Warren Buffet once said, ‘’My wealth has come from a combination of living in America, some lucky genes and compound interest’’.

Compounding not only helps you earn interest on the principal amount as well as the interest it has accumulated, but a higher frequency of compounding combined with a substantial investment period can potentially work wonders for your money in the long run. After all, it’s hard to argue with one of the most successful tycoons of all time.

Inflation on the other hand can be a killer. Not only can it lower the value of your money but it can also adversely affect the interest you earn. For this reason alone, it is incredibly important to take inflation rates into consideration when coming up with a savings plan of your own.

Many people tend to overlook the effect taxes can have on their investments. In our constant quest for potential returns we frequently fail to anticipate how much lower our returns would be if taxes are accounted for. Therefore, it is always advisable to compute post-tax returns before investing.

Similarly, it is also advisable to determine how healthy the state of one’s finances are. Liquidity ratios usually involve a lot of technical gabble when explained by financial analysts but it can certainly help determine whether you are in a position to face a liability crisis. The ideal value of this ratio should be above one and anything less than this points towards financial instability.

Another useful indicator to chart out the return on your investment over a period of time is the CAGR or Compounded Annual Growth Rate. This tool is particularly convenient since it ignores fluctuations over an investment’s time period and provides a clearer picture on returns, especially when comparing the performances of two different asset groups like gold and equity or equity and real estate.

It’s no secret that we Indians love EMIs, so much so that it has literally embedded itself in our collective psyche along with other much loved concepts such as Diwali discounts and ‘Buy one get one free’ offers. However, without a fundamental understanding of how EMIs work, a good saving plan can soon fall by the wayside. That being the case, learning how EMI calculator works can help you ascertain whether you are being charged the right amount by the bank or not.

Keeping a few of these concepts in mind can give you a leg up in the prevalent economic environment and ensure sound decisions are made when it comes to your hard-earned money.

As the saying goes, ‘’Knowledge is power’’.