KEY CONCEPTS IN PERSONAL FINANCE

Savings: The surplus of income over expenditure, used to meet short-term goals.
Income: Money earned from various sources like salary, wages, etc.
Expenditure: Money spent on various items, including essential and non-essential items.
Investments: The act of deploying money into financial or non-financial products with the expectation of earning higher returns over a period of time.

SAVINGS VS INVESTMENTS

Savings:
- Meaning: A portion of one's income not used for expenses.
- Purpose: To maintain liquidity for short-term or urgent requirements.
- Risk: Low or negligible.
- Liquidity: Highly liquid.
Investments:
- Meaning: Putting money into various investment products to make it grow.
- Purpose: To make money grow by creating assets that can generate income or increase in value.
- Risk: Depends on the asset in which the investment is made.
- Liquidity: Comparatively less liquid.

Investing money makes it grow, helping to achieve financial goals like owning a house, financing education, or funding retirement.
Starting to save and invest early in life is crucial for meeting long-term goals.

Assets: Items owned that have economic value, such as savings or investments.
Liabilities: Items owed to others, such as loans or debts.

Debt: Money borrowed to meet a shortfall when expenses exceed available funds.

The value of money changes over time due to its potential to earn interest or appreciate in value.
Having money now is more valuable than having it in the future because it can be invested to earn returns.

Inflation: A rise in the prices of goods and services, reducing the purchasing power of money.
Inflation can decrease the value of investments over time, making it essential to consider its effects during financial planning.

Compounding: Earning interest on both the principal amount and any accrued interest over time.
Compounding can significantly grow investments over long periods, unlike simple interest which only earns interest on the principal.

A formula to estimate how long it will take for an investment to double in value, by dividing 72 by the annual interest rate.

A strategy of investing a fixed amount of money at regular intervals, regardless of market fluctuations, to reduce the impact of short-term market changes on investments.