The importance of financial literacy cannot be stressed enough. For one, the recent global health crisis has forced many of us to change our lifestyles due to reduced incomes and opportunities. Furthermore, not having a strong grasp of key financial concepts makes it impossible for any of us to achieve financial stability and independence down the line.
Unfortunately, a recent poll from The Canada Life Assurance Co. noted that Canadians in their 20s didn’t do great on a quiz about important financial topics. Although, this particular age group expressed the most interest in expanding their financial knowledge. Here, we list down three essential financial concepts that every young adult should master in order to find success in life.
Budgeting
Effective budgeting allows you to make the most out of your money. In essence, a budget is a comprehensive financial plan over a defined period of time that allows you to oversee how much money you have and where it’s going.
While this may seem easy to do, a lot of people struggle with creating a budget that best fits their lifestyle and needs, especially if their spending or income is inconsistent. Thankfully, you can download a budgeting app on your phone that can help you build a foolproof budget. Apps such as Mint and Zeta can make budgeting easier by connecting to your financial account and tracking every expense you make.
Credit Score
If you want to get the best terms and rates for a mortgage or loan, you’re going to stay on top of your credit score. In a nutshell, your credit score is the approximation of how likely you can pay your loan on time.
Having a low credit score can tarnish your chance of accessing financial products from institutions such as banks and lenders. In this regard, you should closely monitor your credit score by regularly checking your credit reports from a reporting agency such as Equifax or TransUnion. In addition, you can also maintain a good credit score (and improve it) by making sure that you pay your dues on time, manage your credit utilization, and resolve delinquent accounts.
Taxes
Taxes are critical when it comes to securing your financial future. This is because a huge part of your personal income is dedicated to paying taxes. You should be knowledgeable when it comes to taxes, especially if you don’t want to encounter tax problems due to errors of ignorance. Understanding taxes can also empower you to do your own calculations and forgo hiring a CPA, as well as see if you may be eligible for refunds, benefits, and credits payments.
Fortunately, there are a ton of tools and resources online that can help you better understand the concept of taxes. One important point to consider though is that taxes change depending on the province you live in. For example, if you live in Alberta, you can use a tax calculator specific to the province to calculate your income tax. It does this by taking into account crucial data such as deductions, HRA exemption, and income. The federal government’s website also has an online course that can teach you everything you need to know about filing your own taxes.
Improving your competency in the financial concepts we’ve listed above can help you make better financial decisions down the road.
