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The last thing to learn about financial literacy is just a general understanding of how money works. By general understanding, I’m talking about things like interest rates, credit cards, and different types of payments.
As an example, when you look at your car insurance: what’s the lowest deductible that you can choose? Typically the lowest deductible available is around $500 (in the United States) but what I didn’t understand was that there was also a second tier. This tier had a $1,000 deductible.
I was worried if something went wrong I couldn’t afford the $1000 for the deductible. I looked at the $500 deductible plan and how much I was paying every month and compared it to the $1,000 deductible plan. The $1,000 deductible plan would actually save me $50 a month. Over 12 months that would save me $600!
Realizing I could have been saving $600 a year for the last five years… I would have had an extra $3,000 that I could have used to spend, save, or invest. So that general financial knowledge comes in handy when you can break down necessary payments.
We don’t want to just focus on the lowest payment we can get. In this example, the lowest deductible didn’t actually work for me in the long run. It just takes thinking if I make this decision how does that affect my finances and if I make this decision how does that affect my finances
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Image and article originally from thebrownreport.com. Read the original article here.