If you are an adult who wants his/her financial life to be better with every passing day, you should at least know how to research a business, read annual reports, and find good quality stocks. Your older self will also thank your younger self for learning skills like budgeting, computing taxes and using an excel sheet.
As per an HBR report, workers across the globe seek to learn new skills in the January of every year as signups for courses and classes go up drastically. But as the initial excitement drops, about 40-80% of adults drop out of these courses. HBR found that the ones who drop out lose out in some way whereas about 72% of the ones who learn a new skill, report career benefits or a beneficial salary raise.
But the fact remains that most adults do not learn new skills and in times like today, where external job situations are changing at a rapid pace, learning new skills has become mandatory to thrive in your field or profession. The same applies when it comes to upgrading your financial knowledge. You might track the news or binge YouTube videos for stock updates and market trends, but unless you learn the skills, looking at those updates is kinda pointless. So here are some financial skills you should learn so that you can use them for all your life and upgrade your money situation as you progress:
1. Researching a business: When you are about to invest in a business or even want to join one for a better job opportunity, you need to do a solid thorough check. You need to know if the business is legal or not in the first place. You need to understand the business models that help it run smoothly, check for some essential figures, ratios, ensure that the customers of the business are happy and what the future plans are. You might want to check its competitors, check their financials and annual reports and talk to past stakeholders since the business performance will be affecting your personal money situation.
2. Reading annual reports - This is an important and a bit intense skill to learn because once you learn how to read annual reports, you can check the financial status of any company at any time of the day without any external help. Annual reports usually contain financial statements, cash flow statements, performance highlights, past performance, an outlook on future expectations and even disclosures about legal liabilities. You might have seen how people make money on the stock market when a company's annual reports show that a company is performing better than expectations. So if you have to improve your own or someone else's money situation, learn to see a company's figures.
You can check metrics like Price/earnings ratio, Price/book ratio, Net profit margin, Return on equity and Return on assets.
3. How to identify a good quality company: Investors usually look for these few factors when they identify good quality stocks for investments or trading. This includes High return on equity (ROE), Stable year-on-year (y-o-y) earnings growth, low financial leverage (debt equity ratio), a good management, and an economic moat (ie the competitive advantages a company has over its competitors). It's great to have someone do this for you, but learning how to look at these factors yourself will take you quite ahead in your financial journey and help you be proactive.
4. Budgeting: Many young adults often find themselves dealing with this question:
The people who want to make large amounts of money consistently swear by a budget because a budget helps creates consistency and financial stability in your life. When you track expenses, save as per your needs, and follow a plan, you end up being consistent and good with finances because more often than not, you will pay bills on time, build an emergency fund, and save for big expenses. Budgeting ensures that you don't spend money that you don't have.
5. Computing your taxes: If you are in India, your tensions might usually rise in the month of June and July because you have to file your personal taxes. Taxes are boring and monotonous and no one wants to willingly pay taxes on their hard-earned money. But since you got to do it, you might as well do it well. Knowing more about your tax laws and honing your tax computing skills doesn't really hurt anyone.
Though computing and filing your taxes was quite taxing all these years, things are slowly getting easier and automated. You need to have a basic idea of what kinds of incomes are taxable and to what extent, the tax rates on different kinds of incomes, what kinds of expenses are allowed as deductions, and any tax credits or refunds that you may receive.
6. Learn to use MS Excel or use apps: Finances can be simplified if you know how to use the right tools like Microsoft Excel. Take some time out to learn Excel shortcuts and operate an excel sheet without a mouse. You could even use apps to organise your finances better.
Irrespective of what skills you learn, the intention is to get educated and execute the knowledge to up level your finances. In this era when learning a new skill can make you more money, it might be the only thing you might need to turn that financial liability into an asset.