Here are five core financial topics that can help you make smarter money decisions.
The first topic is inflation. It's key to making various financial decisions, including those related to investing and depositing our savings, for example, in a term deposit or savings account, as well as taking on debt. Therefore, understanding inflation is one of the most important things if we want to understand the world of money in general. What is inflation?
It's often said that inflation is simply rising prices, but in reality, inflation is a decline in the purchasing power of our money. When inflation rises, each dollar you earn buys a little less than it did before.
In the U.S., institutions like the Federal Reserve aim for a target inflation rate (typically around 2%). Knowing that central banks actively manage inflation helps you better understand interest rate decisions and market movements.
Another very important thing in the context of inflation is opportunity cost. If your money sits in a non-interest-bearing checking account, you’re losing purchasing power over time. Even doing nothing has a cost. That's an opportunity cost - what your money could have earned elsewhere.
The next topic worth exploring is the role of central banks and interest rates. These things are connected because central banks are key institutions in the global financial market. For example, if we have commercial banks, they usually deposit money with the central bank. So you could say it's a higher authority. Central banks have their own tool for regulating what's happening in the local, or sometimes even global, economy. And this is precisely the case with interest rates. They can either accelerate the pace of global or local economic growth or slow it down.
So how does it work? When central banks, or rather special units within them, raise interest rates, it has a negative impact on the economy. Interest rates on deposits and all types of savings products rise, which, of course, pleases those with savings, but at the same time, interest rates on loans rise, which worries those with liabilities. A similar situation occurs when central banks lower interest rates. This creates a situation where we can invest our savings at a lower interest rate, but our liabilities, such as loans, including mortgages, also have lower interest rates. Central banks influence both large investors' money and our own as individuals.
The third topic is compound interest. Albert Einstein called compound interest the eighth wonder of the world. It's not without reason, because it's a concept that truly influences our investment decisions, how we perceive money, and even how we perceive small amounts. After some time, our profits from savings or investments begin to generate new profits. Time and consistency are more important than the amount saved. So, if we regularly save even 100 or 200 dollars, compound interest begins to accelerate. Let’s say you start investing and your account grows from $5,000 to $5,080. Technically, that’s progress. But emotionally? It doesn’t feel life-changing. You might think, “Eighty bucks? That’s it?” That’s the stage where most people quit. The key is sticking around long enough to see that acceleration happen. If you pull your money out too early, you interrupt the entire process.
The next topic is understanding the basic principles of investing. It starts with having a financial cushion. That means setting aside cash for emergencies - job loss, medical bills, unexpected repairs. But even that money shouldn’t just sit in a zero-interest checking account. A high-yield savings account or short-term conservative investment can help it at least keep up with inflation while staying accessible.
Then comes building a long-term investment portfolio. This is where you decide how your money will grow over time. For many people, that means using simple, widely available tools like stock and bond ETFs, retirement accounts like 401(k)s and IRAs, maybe some exposure to real estate, and possibly small allocations to alternative investments. You don’t need to overcomplicate it. What matters most is diversification, consistency, and a long-term mindset.
The final topic is understanding the difference between assets and liabilities. Assets are things you own that put money in your pocket, grow in value, or at least hold their value over time. That could be rental property generating income, stocks, bonds that pay interest, or a business that produces cash flow.
Liabilities are things that cost you money and usually lose value. They drain your cash flow instead of strengthening it. A car is a classic example. Yes, it has value, but most cars depreciate quickly and require ongoing expenses like maintenance, insurance, and fuel. Unless it’s a rare collectible that appreciates over time, it’s not building wealth.
When you start looking at your financial life through the lens of assets versus liabilities, your decisions become clearer. You begin asking better questions. Is this purchase building my future, or just upgrading my present? Am I increasing my asset base, or just increasing my expenses?
