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Editorial Invest in Slovakia
Finance education in schools is very underestimated in Slovakia. The subject of financial literacy is still not included in the curriculum of our education system, and so it is no wonder that more and more people are asking the state for debt relief, or finding that they have absolutely no savings that would be enough to live in dignity in retirement. So in today's article, we're going to look together at the 4 basic pillars of financial literacy that you almost certainly weren't taught at school.
How are you going to manage your money wisely if you don't even know how much money is coming into your account, and how you are going to spend it? An easy way to save money is to start tracking your income and expenses. You can either write down individual transactions on paper, or there are now many free apps on your phone for managing your personal finances. If you know where your money is going, it's easier to continually cut back a little in that area and save a few more euros each month.
If you've successfully managed to track your income and expenses for, say, a few months in the first step, the next step will get you on track financially, too, and that's creating a family budget. Ten môže mať opät formu listu vo vašom obľúbenom zošite, alebo aj Excel tabuľky. Najjednoduchší rozpočet si vytvoríte spísaním očakávaných príjmov domácnosti a taktiež očakávaných výdavkov, ktoré je nutné rozdeliť na jednotlivé skupiny, ako napríklad jedlo, bývanie, auto, darčeky a podobne. Po uplynutí mesiaca už iba you allocate to the expected income and expenses the real amounts you have recorded during the month and you're done. For more complex budgets, you can also include the change in individual debts, bank accounts, investments, and also changes in your total asset value.
Does every unexpected expense surprise you? In that case, you don't have enough savings in the bank. During financial education at school, pupils may be reminded that it is good to save money. Even in their youth, parents used to set up savings accounts for their children, now savings products, to set an example for their children.But is this enough? The habit of saving consistently and sufficiently, i.e. at least 10-15% from every single paycheck, cannot be built up from just a few one-off incentives.
Every single adult should have at least some amount of money available at all times. How much, of course, is up to you. Dave Ramsey, an American expert on family finances, recommends a basic savings of $1,000, converted to 843 euros. It is this amount that should cover most unexpected expenses, such as a broken down car, sudden medical expenses and so on.
However, if you want to have complete financial security, it is recommended increase your savings in a savings account to at least 3 to 6 months of your of your basic monthly expenses. We are talking here about the necessary payments for rent or mortgage, energy, fuel, various insurances, telephone lump sum, food and medicine expenses and other monthly expenses that that make up your basic monthly budget.
Debt doesn't have to be bad at all costs. For example, without a mortgage, most Slovaks today would not be able to afford their own housing perhaps even until they are forty. However Credit cards and debts with higher interest than 10% are very dangerous. Threatened risk of falling into a debt trap, which most of the time only extreme frugality or court-ordered debt relief, the so-called personal bankruptcy.
The risk is greatest for young people, often students, who rely on borrowed money from a bank or, in a worse case, from a non-banking entity and are not fully aware of the consequences of their actions, which will catch up with them years later. Therefore, if you currently have dangerous debts, write them all down on paper. For each debt, attach the name of the company you owe money to, the minimum monthly payment, the interest rate, and the total balance owed. If you don't know these details, call the company's helpline to find out.
The first glance can be scary, but don't despair. At repaying your debts, you can choose one of the two most common methods. At both methods, you pay the minimum repayments of each single debt and the remaining of the money you save from your paycheck is redirected to a single debt. With the first method it's the debt with the lowest residual value. This method is worthwhile if you are afraid that you don't have the self-discipline to stay in the faster paying off your debts faster, or if you need to free up your cash flow. In the event that these two things don't concern you, we recommend that you use the second methodology of debt repayment, where you pay extra payments on the debt with the highest interest rate. This method makes the most mathematical sense, of course, and overall you saves you the most money.
If you have no debts, invest and take advantage of the miracle called compound interest. Whether you opt for the safest forms of investing such as term accounts, bonds, or real estate crowdfunding, whether for mild more risky forms such as investing in index funds to the more risky forms of investing in the form of buying individual company shares on the financial market, know that it's the only way, to protect the value of your money for the future.
What you get at school they don't tell you is that keeping all your savings in checking or even savings in a bank account means you're losing the value of the difference between inflation and the interest rate, which today is no more than around 0.20% per year.
What other financial knowledge didn't school teach you? Let us know and we'll be happy to follow up this article with a sequel that includes information from you, our readers.
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