Basic Financial Concepts that even Amateur Investors must be Aware of

Whether you’re starting a business or helping out someone financially, you need to be aware of certain basic concepts to start. We have listed down some important points to you to help you get the basics down to a scratch to help you understand the 101s of finance. With these, learn how to drastically increase your chances to build a long-term wealthy life.

Financial Concepts that even Amateur Investors must be Aware of
1. Net worth

Your net worth is the spectrum to measure your financial condition. It is the result that you get when you minus the total assets to the total amount you owe. Your financial condition is well and good if your net worth is in the positives. If your net worth is in the negatives then you have some work cut out for you. Net worth is also used as a measurement to find out how far you have come.

2. Bull market

A Bull Market is a good thing in the world of finance. It means that the prices of assets and shares on the market are on a rise and are increasing prominently. That also means that the economy of the state is prosperous and the employment level is high.

3. Bear market

Bear Market is the exact opposite of Bull Market. It means that the market price is declining, share and asset prices are decreasing and the economy of the state and unemployment rate is in the down low. Although it is a bad thing, you should keep in mind that the market is bound to go up and down at times and you shouldn’t panic when that happens. Over time, with enough patience, you will find out that even money has time to grow.

4. Inflation

Inflation, in the world of finance, is the increase in the price of goods and services.  As the prices of these goods rise because of inflation, you will be able to afford them lesser than before. The rate of inflation is 3% per annum. The most important thing is to maintain your income on par with the inflation rate. If your income is not keeping with the income, it will cause a hindrance in you not being able to afford things in the future.

5. Risk tolerance

In the world of finance, you have to prepare yourself to the risks it comes with managing money. Risk tolerance is basically to see or test how comfortable you are with these swings in the market price. The main thing is to not stress yourself out and understand the cycle. How high you risk tolerance level is solely dependant on how far you are willing to go for investments.

Risk tolerance shouldn’t be confused with being emotional. It depends on many factors like, how much time you have left for you to invest, your earning potential in the future, the assets that you have not invested yet. All these factors boil down to your level of risk tolerance.

Also Read- Things to Consider Before Co-Signing a Loan

Anum

Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere.

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