A LITTLE Money Management Guide
Ten Important Concepts to Managing Your Money
Understanding Depository Institutions
It is important to understand what banks, credit unions, and other depository institutions are and how they work. These institutions provide checking, savings, and cd accounts for individuals and businesses. They receive charters from either the federal government or state government where they are located. FDIC insured institutions protect customers from losing their money should the bank shut down. This gives customers confidence that money is safe.
Finding the right depository institution is another great money management tool. Whether you use a local bank or credit union, or even an online bank, all have advantages and disadvantages. Based on your financial position and needs, you should pick the institution that best suits your needs. Do they offer you free checking and savings? Can they accommodate your online banking needs? What other services might they offer to their customers for free or reduced cost? Some institutions offer free financial advising, free safety deposit boxes, and other perks that could help you manage your finances better.
Taxes generally provide for services to a community. Taxes are paid by citizens to the government to provide various services. There is more than one type of tax. There is Income Taxes on wages, Unearned Tax on items such as monies received as interest on bank accounts, Property Tax on items you own such as real estate.
Assets vs. Liabilities
It is very important that you understand the difference in an Asset and a Liability. An asset is cash as well anything owned that has a monetary value. This would include items such as personal belongings, cars, and real estate. A liability is a debt or obligation that is owed to others. This would include things such as loans or balance on a credit card
Statement of Financial Position
A Statement of Financial Position is a tool used to know where you stand financially at any given time. It puts all of your financial information onto one page. This is an important money managing tool that helps you reach your financial goals.
Income and Expense Statement
An Income and Expense Statement helps you understand where your money is coming from every month, year, or any given time. It is important that you understand where your income is coming from. It can come from wages or in the form of interest or dividends from other assets held. It is also important to understand where your money is going. Understanding your expenses keeps you from overspending.
Once you understand your financial position and have a budget put together, you need to put together a spending plan to help you with some of your goals. Whether it be purchasing a house, paying off debt, or putting a child through college, a spending plan is a great tool to have if you want to reach a specific financial goal or position.
Putting it all Together
Once you understand all the terminology and concepts of personal finance, you need to put it all together in a well devised manner that you can execute regularly. From finding a good financial institution, to budgeting, to goal setting, these things should come together to help you maintain a stable financial position.