What are some key pieces of knowledge to know in personal finance?

What are some key pieces of knowledge to know in personal finance?


Plan - Planning is probably the most important phase of personal finance. Planning includes a roadmap of your short and long term aspirations and how much money you want to save for each. Allocate additional money for contingencies. This includes money for college, marriage, or a trip around the world, etc. Then plan how much you would have to save to achieve these.Save Early, Invest Early - Compound interest is a powerful tool in the long run. Early savings mean early capital to be invested. This translates to compounded returns over the lifetime of investments.Invest long term - Most people think of making a quick buck through their investments. This is myopic and one should think about long term investments. This is in line with the power of compoundingInvest in what you understand - Just because your neighbour invests in Japanese bonds, doesn't mean you should. Invest in what you understand, don't follow the crowd.Diversify - As Shane Conway points out, diversify your investments. While it won't protect you from market downturns completely, it will certainly soften the blow.Spend what you can afford - Manage your finances carefully. Don't spend what you can't afford. Remember, debts also compound over time, so keep them to a minimum. Prioritization is also important in this regard. Make sure to prioritize your needs. The new iPhone can probably wait if it forces you to put it in your debt account.Get medical/life insurance - Yes, insurance is one of the best tools to manage medical and health risks. While other insurance may or may not be beneficial, medical and life insurance are almost universally useful.

Answered by Tim

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