Quick Financial Lessons to Boost Your Knowledge

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The basics of personal finance are easily understood and commonly known. Spend less than you earn, save an accessible emergency fund, the list goes on. But for those who have a well-established financial base, what’s next? Here are 5 quick financial lessons to help you boost your knowledge and create further financial success.  

1: Tax Credits Often Save You More Than Tax Deductions 

While many people focus on getting as many tax deductions as possible, credits often have a much more significant impact on how much you’ll owe or receive back from the IRS. That’s because credits directly lower your tax bill dollar for dollar while deductions reduce your taxable income, which is used to calculate your tax burden.  

For example, a $1000 deduction might take your taxable income from $50,000 to $49,000, which may only end up having a small impact on what you owe. But a tax credit of $1000 could instantly turn your $1,250 tax bill into $250. If you’re curious about what tax credits or deductions you’re eligible for, be sure to consult a tax professional. 

2: It Pays to Protect Yourself and Your Assets 

Insurance exists for a reason. And while many people are hesitant to spend money on something they may never see a return from, protecting your health and your assets with insurance is a great way to secure future wealth.  

Many people are familiar with the need for certain types of insurance, such as home insurance or auto insurance, but securing your income with life insurance can easily be overlooked. That’s why it’s wise to consider taking out an affordable term life insurance policy that can provide financial support to loved ones if you pass unexpectedly. The right life insurance policy can also give you peace of mind that your family won’t face undue financial stress while they’re grieving. 

3: Focus on Tax-Deferred and Tax-Free Investment Vehicles 

At a young age, money flowing into investments is the name of the game. But as you think through your long-term financial picture, it’s worth taking a moment to assess the tax implications for when you’ll withdraw that money on the back end.  

It’s beneficial to use as many tax-advantaged investment options as you have at your disposal. That may mean using your company’s pre-tax 401(k) and balancing it with a Roth IRA, which uses after-tax dollars. You can also tack on a taxable brokerage account with no favorable tax treatment. Creating a solid blend of account types and focusing on tax-advantaged accounts means more money in your pocket come retirement age.  

4: Diversify Your Investments to Manage Risk 

Diversification is the process of managing investments across multiple types of investment accounts, industries, companies, etc., to create a balanced portfolio. This makes it so your portfolio is not so heavily weighted in one sector that a bad day for the US technology sector means you’re crashing and burning.  

Keeping your investments diverse may include considering both US and international markets, large- and small-cap companies, as well as different sectors and investment vehicles. All investments carry some level of risk, including the potential loss of all money invested. No investment strategy can guarantee a profit or protect against a loss. However, a diverse portfolio is your best hedge against volatility as it’s less likely that all parts of your portfolio will lose value at the same time.  

The Bottom Line 

Financial information is often self-taught these days, and it’s never too late to start learning. Simple lessons like reviewing tax credits and deductions, using life insurance to protect yourself, focusing on tax-advantaged investment vehicles, and diversifying can help you create a more well-rounded financial knowledge base. And that can set you up to make wiser money moves in the future.