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LearnAcademyInvestment fundamentals: Strategies in practiceLesson 1: Finance Management 101: The Financial Plan

Lesson 1: Finance Management 101: The Financial Plan

After completing this lesson, you will be able to:
Name the three essential elements of financial management.
Understand crypto investing as part of a financial management plan.
Know the difference between saving and investing.
Understand crypto’s role in all three parts of financial management.
Understand the role of a budget in financial management.

Welcome to the first lesson in Kriptomat’s Fundamental Investment Strategies course. In this lesson, we’ll focus on the elements of a personal or household financial plan.

Let’s begin by agreeing on what a financial plan is.

A plan starts with a goal

  • Your goal might be to have a comfortable retirement. Or to buy a new car. To pay off your university education or purchase a home. Maybe you want to pay off existing debts. Your long-term plans probably include several of these goals.
  • In your plan, you set a date for each goal, then you outline the steps you must start taking now to achieve each one.
  • A financial plan is a detailed set of steps for achieving financial goals.

A financial plan has three parts. Part one? Control your expenses

  • Monthly expenses have a habit of creeping upward, and you can achieve your goals more quickly if you weed out unnecessary expenses now and then.
  • Maybe you can eat out in restaurants less often. Take lunch to work two or three times a week instead of eating out. Cancel an unused gym membership.
  • Your financial plan may reveal that you need to cut down on your expenses more drastically. You may need to rent a less expensive home or postpone the purchase of a new car.

The second part of your financial action plan has to do with savings

  • Every month, a portion of your income should go into a savings account.
  • These bank accounts don’t earn significant interest, but they are useful as a separate place to store money so you won’t accidentally spend it. In most countries, including every member of the EU, savings accounts are insured against bank failure up to 100,000 euros per account.
  • You can still withdraw money anytime you need it for emergencies.

The third element in your financial plan is investing

  • Controlling expenses and putting some money into savings each month is a slow and steady way of managing your money.
  • Investing holds out the potential of earning more money more quickly. That’s especially true in crypto investing. No stock, fund, or precious metal has ever delivered the large returns that Bitcoin and other cryptocurrencies have.
  • It’s important to remember that the money you invest is at risk if the market takes an unexpected turn.
  • Remember, the risk of loss in trading, buying, selling, or holding virtual assets or currencies can be substantial. You should therefore carefully consider whether trading in virtual assets/currency or any levered or derivative virtual assets is suitable for you in light of your financial condition.
  • That’s why you should always control your expenses and set aside money in a savings account before determining what funds you have available for investing.

Most experts now recommend including crypto in your investment, savings, and cost control plans.

  • Conservative financial advisors were skeptical about crypto investing for years.
  • Their skepticism may have been fueled in part by the fact that they earn no commissions or fees on crypto, which cuts out middlemen like them.
  • Today, all but the most skeptical financial advisors see a role for cryptocurrency as part of a balanced investment portfolio.
  • Crypto can deliver high-yield savings via stablecoins, staking, and innovative programs like KriptoEarn, which delivers APYs of up to 13.5% on your crypto savings balance.
  • Crypto can play a role in controlling expenses, too, via automated investing tools like Kriptomat Recurring Buy, which makes investments you specify according to a schedule you choose on a weekly, bimonthly, or monthly basis. Applications like Recurring Buy help ensure that cash is applied to your financial goals instead of being spent thoughtlessly.

Everyone needs a financial plan, but everyone’s plan is different

  • It’s possible that you could achieve your financial goals by controlling expenses and savings alone. In that case, investing could be a minimal part of your plan.
  • In general, the highest returns come from high-risk investments. Take a look at your financial status, your upcoming financial needs, and your savings status before deciding how much risk you are willing to have in your portfolio.
  • Investing can also be part of the solution if major expenses like retirement or kids’ university costs are coming due and savings alone won’t get you there.

A budget is a record of your financial strategy

  • Your budget shows your monthly income from salary, rentals, and all other sources.
  • It shows expenses, including taxes.
  • It specifies how much you will put into savings and how much you will invest each month.
  • To implement your financial plan, simply follow your budget!

So – what have we learned?

  • A financial plan includes goals and the spending control, saving, and investing actions you will take to meet them.
  • Your planned spending control and savings should cover your predictable expenses.
  • Investing is risky but it can help you achieve major goals, especially in the long term.

That’s the end of this lesson! Test your understanding and earn points toward a Kriptomat Academy certificate of achievement by taking the test!

Which of these is NOT part of financial planning?

Controlling expenses.
Filing taxes.

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How does crypto investing fit into a financial management plan?

Crypto can take the place of savings.
Crypto is good for domestic transactions, but fees make it prohibitively expensive for international purchases and sales.
Cryptocurrency gains are not subject to taxes, and therefore help keep your monthly balance positive.
Like all investments, crypto investing lets you put a portion of your monthly budget into a higher-risk instrument with potentially high returns.

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What’s the difference between saving and investing?

Funds in a bank’s savings account earn negligible returns but they are at virtually no risk. Investments also have virtually no risk, but the returns are potentially much higher.
Investing puts funds at risk but offers potentially higher returns, while saving involves negligible risk and minimal returns.
Invested funds carry no risk and may be withdrawn and used at any time. Savings accounts also carry no risk, but can be withdrawn only after they come to maturity.
The money you save comes out of reductions in your daily living expenses, while investment money comes from your investing fund.

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What is a budget?

A record of your investment plan and detailed steps for meeting your financial goals.
Spending limits for each kind of expenditure.
A financial record required when filing taxes.
Financial records from previous years.

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Which of the following statements is NOT true about cryptocurrency’s role in financial planning?

Crypto can be a good target for investing.
Innovative staking and savings programs can contribute to the savings element of finance management.
Crypto funds are not listed in a formal budget.
Automated investing programs can help control expenses by transferring earmarked funds to savings or investments according to a regular schedule.

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Kriptomat Academy content is informative in nature and should not be considered a personalised or any other investment recommendations or advice.
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