How to Understand Finance: A Primer

Finance - the Other "F" Word

When it comes to personal finance, what do you know? Understanding finance is more than just being able to balance your checkbook and pay your bills on time. Finance encompasses the concepts of budgeting, saving money, purchasing insurance, investing, and securing credit and loans. Oh, and paying taxes too!

Once you know how to understand finance, you'll be in more control of your future. You could be eligible for more favorable interest rates on personal loans, credit cards and mortgages. You'll likely be more secure in the months and years ahead - able to weather the storms of unemployment, unexpected medical bills and other maladies that life may toss our way.

For me, I always considered finance to be the other "F" word. I knew that I needed to have a better understanding of finance, but was too anxious and intimidated. It took a personal income tax class in law school for me to finally get excited about finance and take control of where my money was going each month in a positive, empowered way.

The following hub is a summary of the key elements to understanding personal finance: spending, saving and investing. Think of it as a Finance 101 lesson. After you learn the basics, you'll then be able to start exploring specific programs to get you on the road to great financial health.

Understanding finance can help you reach your financial goals
Understanding finance can help you reach your financial goals | Source

Understanding Finance: Spending

When most people think about finance, the first thing that comes to mind is saving money. Yes, that is part of it too, but personal finance includes judicious, smart spending as well.

Did you know that in order to build a good credit score, you need to actually apply for (get approved) and use a credit card?

Other than opening a bank account, this is one of the first steps that should be made by young adults entering the world of finance. Make several relatively small purchases and pay off the balance within 1-3 months. After a year or two of building good credit, you can then seek and obtain more favorable terms on an automobile loan or finance terms on a larger consumer purchase like a treadmill or computer. Just make sure to continue making at least the minimum payments on time and eventually you'll be ready to buy a house or take out a small business loan.

That's right - smart consumer spending is one of the keys to understanding finance. Spending, saving and investing all build on each other!

How to Establish Credit at College

Understanding Finance: Saving

Understanding finance also means you should learn about saving. The first step is to open a savings account. Banks will often waive fees associated with a simple savings account as long as you maintain a minimum balance and/or regularly transfer money from your checking account into savings on a set date each month. Savings accounts are usually "liquid," which means they can be accessed at any time in case of emergency. There is very little return on your money; the biggest benefit is learning discipline and working on sticking to a budget. Even if you are on a tight budget, you'll want to contribute something each month to a savings account. Deposit $10-20 a week (perhaps giving up your fancy coffee drinks) and in a few year's time, you'll have a sizable account.

Similar to simple savings accounts are certificates of deposit, or CDs, and money market accounts. They often require minimum deposits of at least $1000 and, depending on their length of time (ranging from 1 month to 5 years or more), offer slightly higher interest rates payable to you, the customer. The catch is that you have to leave the money in the bank for a set amount of time, or pay a penalty.

Once you have a secure job, many employers offer participation in 401(k) accounts to save for retirement in the U.S. These accounts are even less liquid than CDs or savings accounts. You will pay a hefty penalty and taxes if you withdraw before retirement age. If you are self-employed, you could go with one of several types of Individual Retirement Accounts, or IRAs, which are similar in some respects to a 401(k) as far as liquidity, but with significant differences.

If you have children, you will probably also want to consider saving for college with a 529 account, offered by individual states. But experts suggest you should save for your own retirement first and put college savings second.

Many people consult a financial advisor to help plan and set up 529 plans and 401(k) and IRA accounts. These are people that understand finance!

How to Set Up a Retirement Savings Account

Understanding Finance: Investing

Now that you have spending and saving down, you need to think about investing as the final piece of your finance primer. Now I know that putting money into a 401(K), IRA or 529 college savings plan is investing. So, let's include it in both categories because its also saving for a particular purpose. There is some risk associated with these type of accounts, but when you use dollar-cost-averaging (this is the most complex term I am going to use in this finance primer hub), you usually end up with a decent return on your investments over time.

Dollar cost averaging is a term that refers to spreading out risk over many months or years by consistently investing the same amount each month, which results in buying at both high and low points in the market.

Other avenues for investing generally include purchasing stocks and bonds directly (through a broker), obtaining a whole life insurance policy, engaging in Forex trading, or even purchasing real estate - though since the residential property market has taken such a beating recently, some are wary of that option!

Unlike retirement accounts and college savings plans, you can use your returns for whatever you wish, whenever you want.

Summary of This Understanding Finance Primer

There is so much to be said about personal finance, you cannot begin to cover all the topics in detail in a single hub. Hopefully this primer will help you learn how to understand finance so you can dig deeper on your own and decide the best uses to which your money should be put.

Helpful links are included below and, if you have questions or your own finance tips to share, I encourage you to use the comment section below.

Money may not grow on trees, but you can encourage some healthy growth of your own accounts with a good, basic understanding of finance.

Tips for Setting up Savings Accounts

© 2011 Stephanie Hicks

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Comments 74 comments

soni2006 profile image

soni2006 5 years ago from New Delhi, India

That's an awesome hub steph. Really useful. Best of luck dear.


kirutaye profile image

kirutaye 5 years ago from London, UK

Well laid out and really useful too. Good job.


travelespresso profile image

travelespresso 5 years ago from Somewhere in this exciting world.

Great work and excellent graphics Steph. The other "F" word - love it!


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thanks very much sonia, kirutaye and travelespresso! I wrote this one off the top of my head, drawing on my own experiences and knowledge of personal finance. Most definitely it can be the other "F" word for many people.... :)


Simone Smith profile image

Simone Smith 5 years ago from San Francisco

This is an absolutely STELLAR guide - your approach is friendly, personable, but also helpful and informed. I appreciate your use of photos and videos as well as links, and find the organization of your Hub logical and easy to follow. Thank you so much for sharing!


drbj profile image

drbj 5 years ago from south Florida

If we could use your excellent hub, steph, as a required primer for high school students, we would have far fewer financial-information-impaired young people in the world.


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you so much Simone! (blushing) I surprised myself by how much I enjoyed writing about how to understand finance. Maybe some residual anxiety about the "F" word. LOL! Best, Steph


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you drbj, I am very flattered! I hope that I can - and am - imparting good financial knowledge to my children. I actually have had a few talks with my 13-year old and almost 11-year old sons about budgeting and establishing good credit. You can never start too young. Cheers, Steph


Om Paramapoonya profile image

Om Paramapoonya 5 years ago

Your advice is very practical. I also like the video about retirement savings. Great job! :)


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thanks very much! I enjoyed the videos too and found them helpful. I appreciate the comment - Best, Steph


oceansnsunsets profile image

oceansnsunsets 5 years ago from The Midwest, USA

Great hub Steph,thanks for sharing. I thought the "other F word" idea was too funny, and too true. Congratulations to you for getting staff pick!


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you oceansnsunsets - I have to admit I am still chuckling... it was actually the first thing that came to mind when I saw the overall topic for this month's contest. I'm very thrilled to have received staff pick, too! Yay HubPages!


travelespresso profile image

travelespresso 5 years ago from Somewhere in this exciting world.

Congratulations on your win Steph. It is truly well deserved.


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you again travelespresso! Much appreciated!


travel_man1971 profile image

travel_man1971 5 years ago from Bicol, Philippines

Congratulations, Steph! It is well-explained in a not too technical way. :D


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

That was my aim - thank you travel_man! Best, Steph


Dorsi profile image

Dorsi 5 years ago from The San Francisco Bay Area

Awesome and thorough hub. Great vids and pics. Very impressive, easy to read and understand. Bookmarked and saved! Thank-you!


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you Dorsi - very glad that you found it helpful! Great to "see" you again, too. Cheers, Steph


Purple Perl profile image

Purple Perl 5 years ago from Bangalore,India

Stephanie, awesome as usual. A handy guide for all!

Congrats too!


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you so much Purple Perl! I really appreciate the support. Best to you, Steph


liswilliams profile image

liswilliams 5 years ago from South Africa

Well done, that's a brilliant hub


Michael Jay profile image

Michael Jay 5 years ago

Congrats, stephhicks68! This is truly a great hub.


jdnyc profile image

jdnyc 5 years ago from California

Congrats on being the first winner! Great hub!


Loren's Gem profile image

Loren's Gem 5 years ago from Istanbul, Turkey

A very comprehensive and informative hub. There are in fact lots of things we need to know about personal finance and learning its key elements is the first step to better understand this other "F" thing. Congrats on the win - you deserve it! :-)


akirchner profile image

akirchner 5 years ago from Central Oregon

Congrats on the win, Steph!


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you everyone for the congrats and well-wishes. I hope that this overview of finance is helpful to young people, in particular, and anyone else that has been afraid to learn about how money, credit, investing and saving works.


Patty Inglish, MS profile image

Patty Inglish, MS 5 years ago from North America

Congratulations on your win! Rated up and several more!


Chin chin profile image

Chin chin 5 years ago from Philippines

This is really informative and easy to understand, Steph. I think the young people will have no problem grasping the basic concepts you shared. Congratulations on winning!


SweetiePie profile image

SweetiePie 5 years ago from Southern California, USA

Congratulation on being the staff pick for January 3! This hub this hub is a succinct overview that can help most anyway that reads it learn more about understanding finance.


nanospeck profile image

nanospeck 5 years ago

Hey Good Job!!! Congrats!!! You're the first winner!! Votes up!!


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you everyone - I am happy to have won, but even more pleased that this hub is reviewed as informative, helpful and easy to understand. Thanks again and best to you all, Steph


MilesBerry 5 years ago

Congrats on being the contest winner!


barryrutherford profile image

barryrutherford 5 years ago from Queensland Australia

Great hub and well done on winning the Staff's Pick. I found the last video on Tips for setting up savings account useful & at the same time confusing. Sure it seems a good idea to have one account with separate subcatagories. And it seems the chap had developed an Apple Ipad App that he was trying to get approved by Apple to do that. It would be good if banks ad this online set up themselves. Iknwo some such as mine here in Aus has separate Bugdet planners but that is not the same as having an automatic online journal on youir actual bank account with separate expense catagories if you get my drift...


izettl profile image

izettl 5 years ago from The Great Northwest

Good, basic info. Great for a personal finance 101 class.


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you all for the comments and support!

Barry - good points regarding the video. I think that budget programs can be helpful, but all in one bank account applications would perhaps be more useful overall.


ppmusicman profile image

ppmusicman 5 years ago from Indiana

Great job at showing a wide range of information. It also looks like you take knowledge from several sources rather than just follow one "expert". I think each person has to listen to an "expert" and include their own ideas in there. Great Job!!! Congrats.


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thanks ppmusicman - you are right! I wrote this article from my own experience, which has been influenced by a number of "experts." Pick and choose what works for you! Best, Steph


ansonabey profile image

ansonabey 5 years ago from Bangalore, India

Congrats stephhick

great work !


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you ansonabey!


esatchel profile image

esatchel 5 years ago from Kentucky

Great hub! Congratuations! Our kids got their own accounts with debit cards at 13 and we worked toward the end goal of their knowing how to manage their money independently and wisely. They are both fairly savvy, but I have to say that I have one "saver" and one "spender". I think those tendencies are probably innate and we have to learn to better manage who we are. Thanks, for the Hub! Ann


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thanks Ann! Hmmm... my oldest is 13. I hadn't thought about getting him a debit card! My middle son is almost 11 and is definitely a saver. Ever cent he gets goes into a jar in his room. He hates to spend. My oldest is the spender in our family too. Best, Steph


prairieprincess profile image

prairieprincess 5 years ago from Canada

Steph, this is excellent. It's encouraging to know I'm not the only who doesn't find this stuff "natural." I like that you write from the perspective of someone who found the subject intimidating, but then persevered and learned about it. Very nice hub. And congratulations on your win!!!


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thanks praireprincess and Serj,

I'm really glad that the finance primer hub was helpful to you both! I pretty much wrote from the heart and the hub didn't take too terribly long to pull together. Best, Steph


K9keystrokes profile image

K9keystrokes 5 years ago from Northern, California

Congrats on your win!


ezzy1512 profile image

ezzy1512 5 years ago

great hub


Alison Dittmar profile image

Alison Dittmar 5 years ago from PA

Very nice. Gonna share on Facebook :) for all my kids to read!!


emdi profile image

emdi 5 years ago

Finance - the Other "F" Word - Well written hub on 'F' word. Thanks for sharing.:-)


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

thank you, thank you, thank you all! I've been out of town and its been tough to respond to all the comments. I appreciate the votes, and if you really like it, head to the contest page and vote for my hub as the best for the week! Cheers all, Steph


Johnny Parker profile image

Johnny Parker 5 years ago from Birkenhead, Wirral, North West England

Good article. I think that the credit score system should be based on how much you save rather than how much you spend. But then perhaps that's me being a little cynical. Do the banks make more from credit cards than deposits?

Congrats on the staff pick


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Of course Johnny! The banks want us to spend our money, carry a balance and pay off the charges sloooowly over time so they can make the most money. At the same time, they want us to completely pay off the entire balance eventually.

Pay too much, too early and they may even change the terms of your credit agreement to their benefit. Love how the "contract" is one-sided - you take it or leave it.

Best, Stephanie


anna.smith profile image

anna.smith 5 years ago from Germany

wel done really wonderful information grt Hub..


dpatullo741 profile image

dpatullo741 5 years ago from UK

Finance is the strength of human life. So, I feel you article will go hit.


DNemesis profile image

DNemesis 5 years ago

Incredibly detailed--thanks!


akirchner profile image

akirchner 5 years ago from Central Oregon

Awesome - congrats on the win! You deserved it because this was so beautifully done.....as usual!


oceansnsunsets profile image

oceansnsunsets 5 years ago from The Midwest, USA

Congratulations Stephchick on being the weekly winner for this hub! Way to go, I bet you are excited!


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you everyone! I really do appreciate the kind words and support. I'm thrilled to have won the first week's prize and hoping to write some more hubs on finance in the coming weeks. Best, Steph


LillyGrillzit profile image

LillyGrillzit 5 years ago from The River Valley, Arkansas

Wow! Congratulations. I really like the "other F Word"! Thank you for sharing this wonderful Hub. :0)


lender3212000 profile image

lender3212000 5 years ago from Beverly Hills, CA

Great hub! I really wish they would start teaching this material to high school students. Understanding and knowing how to manage money can really make you or break you in life.


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

LOL - Thanks Lilly! :)


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you lender - I agree that high school students need to learn about finance. Even middle schoolers can start prepping for their first job with a basic understanding of financial matters. I'm thinking that a cottage industry of "how to" lessons for kids ages 12-18 might be a really good idea.... maybe at the community college or something!


ezzy1512 profile image

ezzy1512 5 years ago

Nice Hub


Trinsick profile image

Trinsick 5 years ago from Cali

I am such a newbie with finance, looking forward to more on this topic from you


Pamela99 profile image

Pamela99 5 years ago from United States

It is obvious why you won for the week as this hub is so well written. The videos help as well. Congratulations.


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thanks Pamela, Trinsick and ezzy - hope you found this finance primer helpful. Cheers, Steph


toknowinfo profile image

toknowinfo 5 years ago

Wow this is a great hub! I am so happy that you are part of HubPages and your talent for explaining things so well is shared with us. I am very impressed with the way you presented the information in a clear and easy way to read. Rated up and Awesome!


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thank you so much - how kind of you! I appreciate your reading the hub and stopping to leave a comment. Best to you! Steph


Les Trois Chenes profile image

Les Trois Chenes 5 years ago from Videix, Limousin, South West France

One to show to my son, I think. Thanks Steph for this excellent introduction.


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thanks Les Trois Chenes - hope your son finds the information helpful! We're going to do a presentation based on the article at a scout meeting this spring, too.


gsharadasheker profile image

gsharadasheker 5 years ago from Zaheerabad

This is very interesting and helpful to all hub pages users


Aris Budianto profile image

Aris Budianto 5 years ago from Lying along the equator Country

Congratulation stephhicks68, I enjoyed your explanation.


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thanks gs and Aris! Glad that the finance 101 hub was helpful.


Taleb80 profile image

Taleb80 5 years ago

Stephhicks68

Thank you for this well arranged Hub.

As it is "Awesome" I voted.

I tweet it and tweet "Spending, saving and investing all build on each other." beside your name.

Thanks for sharing.


stephhicks68 profile image

stephhicks68 5 years ago from Bend, Oregon Author

Thanks Taleb80- I really appreciate you sharing this on Twittr, too! Have a great day, Stephanie


billywilliams51 profile image

billywilliams51 5 years ago from London

Some really interesting articles and really enjoyed. Keep up the good work. Best rgds Billy

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