School teaches us a lot of things like grammar and history, but there are still a lot of important lessons we do not learn in school.
In particular, finance is a concept that is not explored enough in school. This includes how to budget, what investments are, or how taxes work.
Unfortunately, this can lead to two possible scenarios:
- You encounter situations involving money without knowing what to do and are forced to figure it out quickly.
- You make a mistake due to your lack of knowledge, causing you to lose money.
When you do not have enough knowledge about finance, budgeting, and investments, you may find yourself in either one of these predicaments. Learning about finance after school is a great way to avoid getting into money trouble.
Here are important financing concepts you probably didn’t learn in school.
The 50/20/30 method is a technique to manage your monthly salary and save up for your future. It simplifies the act of budgeting.
Here, the first thing you must do is write down your monthly income. After subtracting tax, divide the remaining amount according to these percentages:
- 50% – Needs
- 20% – Savings
- 30% – Wants
Under needs are your monthly bills, rent or mortgage, groceries, school tuition, healthcare, car payments, and other necessary expenses. These are essential things, so they take up half of your salary.
Savings are funds you keep in your bank account to secure your future. Build a fund with at least three months’ worth of emergency savings and then you can focus on other financial goals. If you have any debt, the method suggests putting half of the savings allocation into paying off your debt.
Wants include optional things like new clothes, vacations, Netflix subscriptions, and hobbies.
This method is a simple way to move toward your financial goals.
Putting your money into investments is one of the best ways to save for the future.
Simply keeping your savings in a bank account may not be enough because inflation will reduce their value over time. For example, saving three months’ worth of grocery budget in your bank might only be enough for two months of the succeeding year.
For beginners, investment expert Raffy Ayuste Jr. recommends investing in Unit Investment Trust Funds (UITF). In simple terms, UITFs involve putting together funding from multiple investors with a fund manager managing the money collectively.
UITFs are good for people who are still learning about investing because the fund managers will be doing the research and fund management.
Other investment options include buying stocks, investing in a local business or real estate, or offering loans with interest.
When buying appliances, you may encounter the terms “buy now, pay later.” This refers to a payment type called installment buying in which you purchase something now and then pay for it over a given period.
For example, you can buy a washing machine and only pay for it partially upfront. You get to take it home and use it already before paying the full price.
This is good for your budget if you can manage regular payments better than a one-time investment. Buying appliances or electronic devices and home improvements are more manageable when done over a longer period, compared to paying a large sum of money all at once.
Many companies offer installment buying and provide different interest rates. Take note of interest rates, penalties, duration, and repayment methods when deciding to buy in installments.
Asset management involves acquiring and trading assets. Asset management professionals are commonly called portfolio managers or financial advisors. Their goals are to increase value while lowering the risk for the client. Portfolio managers can either work independently or for a financial institution.
Working with professionals can help you make more informed decisions, especially at the initial stages of investment. They can offer expertise and provide useful resources like systems that automate manual tasks. Effective asset management can be a good way to meet your financial goals, as well.
Debt comes in many forms. It can be a house loan, credit card debt, or money you borrowed from a family member. While debt is not always bad, managing your debts wisely is important. In fact, many people’s ultimate goal is to pay off loans and be debt-free.
Here are a few important terms to understand when it comes to debt:
- Debt – Anything you owe an individual or an institution; this can be real estate, material goods, or money
- Loan – A kind of debt that involves borrowing money from a lender with an agreement that you will repay it at a later time
- Principal – The principal is the amount being loaned to you
- Interest – An interest rate is an amount a lender charges you. It is a percentage of the amount owed and can be on a monthly or annual basis
One important concept that is rarely taught in school is taxation. Businesses, workers, and consumers are all affected by taxes, whether directly or indirectly.
Direct taxes are those that you pay through the Bureau of Internal Revenue (BIR) or your local government.
These include the following
- Income tax
- Capital gains tax
- Professional tax
- Travel tax
Meanwhile, indirect taxes are taxes automatically deducted from the things you buy or services you use.
Indirect taxes include the following
- Value Added Tax (VAT)
- Excise tax
- Energy consumption tax
- Amusement tax
Every taxpayer has a unique Tax Identification Number (TIN). Individuals and businesses are required to have TINs to transact with the BIR.
Learning Never Stops
Financing may not be taught in school, but it is still important to understand these concepts to make wise money decisions every day.
Concepts like the 50/20/30 budgeting method, installment buying, and asset management may seem complicated, but learning about them can help you manage your finances better. Meanwhile, looking into investments, debt, and taxes can empower you with the information necessary to meet your financial goals.
Continue building your knowledge of essential financial concepts.