Finance Cheat Sheet

This cheat sheet provides quick reminders of key financial concepts, formulas, and rules of thumb.

Fundamental Concepts

Assets: What you own. Examples include cash, stocks, bonds, real estate, and personal property.
Liabilities: What you owe. Examples include loans, mortgages, and credit card debt.
Net Worth: Assets minus Liabilities. A positive net worth indicates solvency.
Income: Money received, typically from employment, investments, or business activities.
Expenses: Money spent on goods and services.
Cash Flow: The movement of money into and out of your accounts. Positive cash flow means more money is coming in than going out.

Simple Interest: Interest = Principal x Rate x Time (I = PRT)
Compound Interest: A = P (1 + r/n)^(nt) where: A = Future Value, P = Principal, r = Interest Rate (decimal), n = Number of times interest is compounded per year, t = Time in years.
Present Value (PV): PV = FV / (1 + r)^n where: FV = Future Value, r = Discount Rate (interest rate), n = Number of periods. This calculates what a future amount is worth today.
Rule of 72: Approximate time to double your money: 72 / Interest Rate (as a percentage). For example, at 8% interest, your money doubles in approximately 9 years.
Debt-to-Income Ratio (DTI): (Total Monthly Debt Payments / Gross Monthly Income) x 100. A lower DTI is generally better.
Return on Investment (ROI): ((Net Profit / Cost of Investment) x 100). Measures the profitability of an investment.

Diversification: Spreading investments across different asset classes (stocks, bonds, real estate, etc.) to reduce risk.
Risk Tolerance: Your ability to handle potential losses in your investments. Affects the types of investments suitable for you.
Asset Allocation: Deciding how to divide your portfolio among different asset classes based on your risk tolerance and investment goals.
Stocks: Represent ownership in a company. Can offer higher potential returns but also higher risk.
Bonds: Represent a loan to a company or government. Generally lower risk and lower returns than stocks.
Mutual Funds: A collection of stocks, bonds, or other assets managed by a professional.
Exchange-Traded Funds (ETFs): Similar to mutual funds, but traded on stock exchanges.

50/30/20 Rule: Allocate your after-tax income: 50% to needs, 30% to wants, and 20% to savings and debt repayment.
Emergency Fund: Aim to save 3-6 months’ worth of living expenses in a readily accessible savings account.
Retirement Savings: Save at least 15% of your income for retirement, starting as early as possible.
Pay Yourself First: Prioritize saving and investing before spending on discretionary items.
Credit Card Usage: Pay your credit card balance in full each month to avoid interest charges and build a good credit score.

This cheat sheet is a simplified overview and does not constitute financial advice.
Consult with a qualified financial advisor for personalized guidance.
Investment involves risk, and you could lose money.
Financial markets are constantly changing. Stay informed and adjust your strategies accordingly.