During my second semester of college, I took a financial literacy course “The Importance of Financial Literacy” that has added value to my life. This course has given me the tools necessary to achieve my goal of financial freedom. I want to share with you FIVE important financial concepts that I believe will add value to every millennial’s life.
Assets vs. Liabilities
Knowing the difference between assets and liabilities is the first step in pursuing financial literacy. Honestly before taking the financial literacy course, I never heard those two words in my life in regards to finances. I wish I would’ve been taught these concepts beforehand but …. I’ll go into a rant about that on another post. So, assets vs. liabilities…I’m about to break down these concepts because they are very important and can be the difference between living check to check or living with complete financial freedom.
Assets: generate cash inflow over the years (anything that puts money into your pockets are deemed assets)
Liabilities: generate cash outflow over the years (anything that takes money out of your pockets with no chance of a return are deemed liabilities)
For more information on assets and liabilities, I would suggest reading Rich Dad, Poor Dad by Robert Kiyosaki; this book goes into great detail on how to use these two concepts to your advantage! (Sidenote: reading makes you better!!)
Individual Retirement Account (IRA): an investment account used to build retirement savings. There are several types of IRA’s: traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. For more information on IRAs.
401k: an employer-sponsored retirement plan that takes money out of your salary (deferred tax) and invest into your retirement from that company. Your employer could match a portion of your 401k as well. For more information on the 401k plan.
Investing in stocks and/or bonds:
Investing in stocks and bonds is an easy way to make a lot of money without doing much. Although, I wouldn’t depend on this form of investing to be “get rich quick”. You would need to invest with the mindset that you will get a long-term return.
Stocks: to claim a part of a company’s assets and earnings
Bonds: To loan money to a company/government with a predeterminded rate.
Mutual Funds: Your money will be invested into a variety of stocks, bonds, and/or commodities (raw material that can be bought and sold).
If you’re a reader, The Intelligent Investor by Benjamin Graham is a great book for first time investors. Graham breaks down every aspect of investing and gives advice that is still valuable today.
For more information on investing.