Everyone needs to have a good picture of their finances. From the money coming into your spending each month, it is vital that you understand every part of your financial health. You don’t have to be an expert, but it is certainly beneficial to know more about your spending habits so you are able to take control of it and other parts of your life. Here are some of the terms that you need to be aware of.

Budget

One of the first terms that you need to get to grips with when trying to take control of your finances is that of the budget. There are so many ways in which you could choose to make a budget. Many experts will suggest that you follow a certain ratio, such as the 50/30/20 rule, but there are plenty of other tips that you could try out.

Even if you are not actively attempting to save your money, you need to make sure that you are budgeting correctly. If you have no idea of a budget at all, it can be really easy to overspend. If you feel like you never have any money, it could be because you are overspending without realizing it.

Everyone needs a budget, so make sure that you have one in place. You could quickly find that your spending feels a little bit more manageable as soon as you have a budget in place.

Interest

There are several key areas that you need to be aware of when trying to take control of your finances, and one of those will always be interest. How does interest work? While you won’t need to know the nitty-gritty, you will need to have a basic understanding so you are able to make smart choices.

This guide to understanding interest can explain in more detail, but interest is basically money accrued that either you or a bank will pay. If you have something like a credit card, you might accrue interest on any outstanding balance. Likewise, if you have a savings account, you will be paid interest by the bank based on what you hold in the savings account.

Though it can take many different forms, it is vital that you are able to understand it in part. Interest is a concept attached to many financial products, and so you need to make sure that you understand it so you can safely choose products to work in your best interest.

APR

Connected to interest comes APR. If you go to take out a credit card or any other form of financing, you will find that there is a certain stat attached to it called APR, or annual percentage rate. This is the cost per year that a borrower will have to pay in order to be able to take out the money they are borrowing. It can affect interest rates and extra fees that you need to pay as part of the loan and can be applicable for everything from furniture to mortgages to credit cards.

Ideally, you want to find a product with as low an APR as possible. This isn’t always easy to do and can be very different for each product. What might appear to be quite reasonable for a mortgage might be a shocking APR rate for something else. Therefore, you need to make sure that you do your research to find out what the average APR rate is for what you are trying to buy, and what a good range generally is.

You might also be able to find fixed APRs. These can be useful in some scenarios, but not in others. For example, many people like to try to find mortgages with fixed APRs for the first few years.

However, if you reach a stage where you might want to refinance your mortgage and end up with some better options, a fixed APR might not always be the best deal.

Debit and Credit Cards

A payment card is a payment card, right? Wrong! Though debit and credit cards might look the same on the surface, they are actually very different!

A debit card will draw money directly from your account when you use it. You must have money in the account to be able to complete the transaction. It can spill into your overdraft if you have one, but if you don’t or you are at your limit, the transaction will not go through. This is one of the first types of card that many people will get hands-on, and it is a useful tool in teaching money management.

On the other hand, money does not leave your account with a credit card until you pay off your credit card bill. This can mean that you will end up buying something that is more expensive than you can currently afford, and you will either have to pay it off once money comes in or you will have to break up the repayments and risk getting a large fine for your slow repayment. However, using a credit card does mean that you can begin to build a credit score, and it can be used to purchase some items that a debit card can’t. Having both to hand and knowing how and when to use them is a must for taking control of your finances.

Everyone needs to have good control of the money in their life so that they are able to look after their finances correctly. A healthy relationship with money is a must for all adults. It does not matter what age you are and the lifestyle that you live, you need to know the basics of money management.
The above terms are just the start of what you need to know about managing your money. Take the time to properly learn about money management, and you should hopefully be able to take control of your finances and use them to your fullest advantage – no matter what that might look like.


Image Credits:

Image 1: Image by Ken Teegardin on Flickr

Image 2: Image by flyerwerk from Pixabay
Image 3: Image by Steve Buissinne from Pixabay