1. Home
  2. personal finance

personal finance

5 basic principles of finance you should know

Discover the five basic principles of finance to improve your financial literacy, including, time value of money, risk management, compounding and more.

Learning the principles of finance is essential for managing personal and business finances, making informed investment decisions and understanding the economy. Here are five basic principles of finance that you should know.

Time value of money

This principle suggests that a dollar received today is worth more than a dollar received in the future due to the potential to earn interest or investment returns. It is the foundation of many financial decisions, including investment strategies and loan repayment plans.

For example, if an investor bought 1 Bitcoin (BTC) for $10,000 in 2017 and held onto it until 2021, when its value reached $50,000, the investor would have earned a return of 400% on their initial investment. This demonstrates the time value of money, as the investor was able to earn a significant return by holding onto their investment over time.

Related: What is the time value of money (TVM)?

Another example of time value of money in the cryptocurrency market is the concept of staking. Some cryptocurrencies, such as Cardano (ADA) and Ether (ETH), allow users to earn interest on their holdings by staking them. In return for this service, stakers earn rewards in the form of more cryptocurrency. This demonstrates the time value of money, as stakers are able to earn a return on their investment over time by holding and using their cryptocurrency.


The principle of diversification means to spread your investment portfolio across multiple assets to reduce risk. It is a way to protect your portfolio from the negative impact of any one investment.

Holding both stocks and cryptocurrencies may help an investor diversify their investment portfolio. By distributing the investment among a variety of assets with various risks and returns, this can reduce risk.

For instance, if the stock market declines, the value of the investor’s stocks may go down, while the value of their cryptocurrency may remain the same or even rise. Similar to this, if there is a correction in the cryptocurrency market, the value of the investor’s equities may make up for any losses.

Risk vs. reward

This principle states that the higher the potential reward of an investment, the higher the risk involved. Investors need to weigh the potential rewards against the potential risks before making investment decisions.

As noted earlier, an investment’s potential benefit is often connected with its risk level. Since they are not backed by any government or central authority and because their prices can be extremely volatile, cryptocurrencies are typically seen as being riskier than equities. Investors might be willing to take on more risk as a result in exchange for the possibility of better profits. The investor’s risk appetite and investing objectives will, however, affect this.

Asset allocation

This principle involves dividing an investment portfolio among different asset classes, such as stocks, bonds and real estate, to optimize returns while managing risk. Asset allocation is critical in creating a well-diversified portfolio that aligns with the investor’s goals and risk tolerance.

An investor might choose to allocate a certain percentage of their portfolio to stocks and another percentage to cryptocurrencies based on their investment goals and risk tolerance. For example, an investor who is more risk-averse may allocate a higher percentage to stocks, while an investor who is more risk-tolerant may allocate a higher percentage to cryptocurrencies.


This principle involves reinvesting earnings from an investment to generate more earnings. Over time, compounding can lead to exponential growth in investment returns. It is a powerful tool for building long-term wealth, but it requires patience and consistency.

This principle applies to both stocks and cryptocurrencies. For instance, a shareholder of a stock that pays dividends may reinvest those payments to purchase further shares, which will result in the creation of additional dividends. Similarly, a cryptocurrency owner who receives interest can reinvest that money to earn even more interest. Compounding’s cumulative impact can grow over time and contribute to an investor’s overall return.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

9 essential finance terms you must know

Boost your financial literacy with nine essential terms. From interest to assets, improve your money management skills.

Financial literacy is a critical life skill that can have a significant impact on an individual’s financial well-being and overall quality of life. It is important for individuals to continuously educate themselves on financial terms and concepts to make informed decisions and achieve their financial goals.

Financial literacy is important for a variety of reasons:

  • Making informed financial decisions: Those who are financially literate are able to make wise financial decisions that are consistent with their aims and values. This involves choices on how much to spend, save, invest and borrow.
  • Avoiding financial pitfalls: Financial literacy can assist people in avoiding typical financial risks, such as high-interest debt, excessive spending and investment fraud.
  • Creating long-term wealth: By knowing how to efficiently save and invest, people with financial literacy can help generate long-term wealth. Understanding ideas such as compound interest and diversification is part of this.
  • Enhancing quality of life: Financial literacy can enhance your quality of life by lowering stress brought on by financial uncertainty and giving people the abilities and information they need to reach their financial objectives.
  • Contributing to the economy: Financial literacy can also contribute to the overall health of the economy by promoting responsible financial behavior and reducing the risk of financial crises.

Here are nine essential finance terms that everyone must be familiar with.


A budget is a plan that outlines expected income and expenses over a period of time. To keep track of spending and make sure that money is being spent responsibly, a budget is necessary. A monthly budget might, for instance, contain revenue from a job and costs for things, such as rent, utilities and groceries. A budget can assist people in better managing their money and preventing overspending.


Interest is the cost of borrowing money, usually expressed as a percentage. Depending on the type of loan or credit instrument, the interest rate may change. For instance, a credit card may impose an interest rate of 18% on outstanding balances. To avoid taking on high-interest debt and to make wise borrowing decisions, it is crucial to understand interest rates.

Related: How to earn interest from crypto saving accounts?

In the context of cryptocurrencies, “interest” can refer to two different things, including interest earned on crypto investments via staking and interest earned by lenders on their crypto holdings by lending them out to borrowers.

Credit score

Based on variables, such as payment history, credit utilization and length of credit history, a credit score is a numerical indication of a person’s creditworthiness. A high credit score can lead to better terms on loans, credit cards and other financial items. For instance, a Fair, Isaac and Company (FICO) score of 700 or higher is generally regarded as favorable.

Since cryptocurrencies are decentralized and unrelated to established credit systems, there is no exact analog of a credit score in the realm of cryptocurrencies. Yet some cryptocurrency borrowers and lenders may determine creditworthiness using alternative credit scoring models built on blockchain technology.

A cryptocurrency lender, for instance, might assess a borrower’s creditworthiness based on their blockchain transaction history, taking into account details such as their payment history, the volume and magnitude of their transactions, and how long they have had their crypto assets. Additionally, some cryptocurrency lending services might ask for cryptocurrency as collateral from borrowers, which might reduce the chance of default and give lenders more protection.


Cryptocurrency refers to a digital or virtual currency that uses cryptography for security and operates on a decentralized, blockchain-based system. Cryptocurrencies such as Bitcoin (BTC) offer an alternative to traditional fiat currency by allowing peer-to-peer transactions without the need for a central authority and can be used for a variety of financial transactions, such as buying goods and services, investing, and sending and receiving money across borders.


An asset is a resource with economic value that can be owned or controlled. A digital asset, such as BTC, or another cryptocurrency, that can be purchased or traded on a platform built on a blockchain is referred to as an asset in the context of cryptocurrencies.

Similar to conventional assets like equities, bonds or real estate, these digital assets are frequently viewed as a store of value. However, cryptocurrencies are a high-risk investment since they are frequently quite volatile and can undergo large price swings.


A liability is a financial obligation or debt that an individual or organization owes to another party. A liability in the context of cryptocurrencies refers to any obligation that an individual or organization has to pay back or return cryptocurrency.

For instance, if someone borrows cryptocurrency from a lender, they would be responsible for paying back the borrowed cryptocurrency plus interest to the lender. Similarly, until the customer receives their money back, all funds held by a cryptocurrency exchange would be seen as a liability.

Net worth

Net worth is the total value of an individual’s assets minus their liabilities. A positive net worth indicates that an individual’s assets exceed their liabilities, while a negative net worth indicates the opposite. Understanding net worth is important to assess financial health and plan for long-term financial goals.


Inflation is the rate at which the general level of prices for goods and services is rising. Over time, inflation can reduce the purchasing power of money and have a substantial impact on savings and investments. For instance, if inflation is 2%, a $100 purchase made today will cost $102 in a year. To make informed financial decisions and prepare for the future, it is crucial to understand inflation.

Related: How to preserve capital during inflation using cryptocurrencies


Diversification is a risk-management strategy that involves spreading investments across different assets or asset classes. Over time, diversification can help lower risk and boost profits. To lessen the risk of losses in any one sector, an investor can diversify their portfolio by making investments in stocks, bonds, cryptocurrencies and real estate. In order to reduce investment risk and amass long-term wealth, it is crucial to comprehend diversification. 

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

How to set and achieve your financial goals

Set achievable financial objectives and use effective strategies to track progress and achieve success.

Before setting a financial goal, it’s important to have a clear understanding of your current financial situation, including income, debt, expenses and assets. Once you have a clear understanding of your current financial situation, you can start setting financial goals that align with your values and priorities.

Here are six steps to set and achieve your financial goals.

Define your financial goals

Set both short- and long-term financial goals as your first step. Your objectives should be specific, measurable, achievable, relevant and time-bound (SMART). One’s short-term objectives might be, for instance, saving $500 for an emergency fund or paying off $1,000 in credit card debt within the next six months, while their long-term objectives might be setting aside $10,000 for a down payment on a home or investing $100,000 for retirement within the following 10 years.

Similarly, in terms of crypto, one’s short-term objectives might be to purchase a specific quantity of Bitcoin (BTC) or Ether (ETH) within the next three months, whereas their long-term objectives might be to hold a specific quantity of a particular cryptocurrency for an extended period of time.

Develop a plan

Create a strategy to achieve your goals after you’ve defined them. This strategy should outline the precise steps you’ll take to accomplish your objectives. For instance, if your goal is to buy a certain amount of BTC within the next three months, your plan may include researching and choosing a reputable crypto exchange, setting up a crypto wallet and regularly monitoring the price of Bitcoin to make an informed purchase.

Track your progress

To determine whether you are on track to achieving your financial objectives, monitor your progress frequently. This will assist you in identifying any areas where your plan might need to be modified.

Stay disciplined

Staying disciplined is crucial when it comes to achieving financial goals. Stick to your plan and avoid any unnecessary spending that could derail your progress.

Be flexible

Be prepared to adjust your plan if necessary. Because life can be erratic and unforeseen costs occasionally appear, you might need to modify your plan.

Celebrate your success

When you reach your financial objectives, congratulate yourself on a job well done. This will encourage you to keep striving for your upcoming objective.

Related: Why do we need cryptocurrencies?

Strategies to set financial goals using cryptocurrencies

Here are some strategies for setting financial goals using cryptocurrencies:

  • Determine your investment goals and risk tolerance: Prior to investing in cryptocurrencies, make a decision regarding your financial objectives and risk tolerance. As a result, you may select the appropriate digital currencies and minimize risks.
  • Research and analyze the potential risks and rewards of investing in cryptocurrencies: Choose your financial goals and risk tolerance before investing in cryptocurrency. Then, select the suitable digital currencies that match your risk-return profile, lowering risks.
  • Create a diversified portfolio of cryptocurrencies: Avoid putting all your eggs in one basket by investing in a diverse range of digital currencies. This spreads the risk and protects you against market volatility.
  • Set realistic short-term and long-term financial goals: Establish short- and long-term, attainable financial goals and objectives. This keeps you motivated and engaged while keeping track of your advancement.
  • Stay informed about the latest news and developments in the crypto market: Follow the most recent market news and happenings to stay informed. This assists you in making judgements that are based on market trends and new prospects.

Related: How to build a crypto portfolio without spending any money or time trading

Before investing in cryptocurrencies, it is essential to understand the risks involved and make informed decisions based on your risk tolerance and investment goals. Precaution is necessary with any investment asset, including cryptocurrencies, because investments always carry some degree of risk. Assessment helps investors minimize potential losses and maximize returns.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Blockchain Industry to Surpass $67 Billion by 2027: Fintech Report Names 2021’s Most Influential Blockchain Companies

Blockchain Industry to Surpass  Billion by 2027: Fintech Report Names 2021’s Most Influential Blockchain CompaniesFinancial technology (fintech) has exploded during the last two years and cryptocurrency and blockchain firms have bolstered the billion-dollar industry. A recently published study by Utility Bidder indicates that the industry is predicted to surpass $382 billion by 2027. Moreover, fintech firms that are blockchain-specific are projected to be worth over $67.4 billion by 2027. […]

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say