Key concepts to understand for your personal finances

Why financial knowledge matters more than ever

Money plays a role in your life every single day. You pay rent or a mortgage, buy groceries, sign up for subscriptions and, if possible, set some money aside for later. These are all everyday actions you often do on autopilot. Yet you might still feel unsure about your finances.

This isn't a personal shortcoming — it’s a broader societal issue. Research shows that financial literacy is declining, even though information is more accessible than ever. Young people in particular struggle to understand essential financial concepts, which presents a dangerous situation in an unstable economic market.

A lack of financial knowledge can have serious consequences. If you don’t understand how debt, interest or inflation work, you’re more likely to overspend, save less and fail to build a financial buffer. This doesn’t just put pressure on your bank balance — it can also lead to significant stress. Money worries are among the most common sources of stress.

The good news? Financial knowledge and skills can be learned. Even a basic understanding of how money works can help you make better decisions, avoid unnecessary risks and feel more at ease about your finances in the long run.

Financial planning: where your money really goes

“Making a financial plan” can sound like you’ll need complex spreadsheets and that you’ll mostly have to give up the fun stuff. In reality, it starts much more simply – by taking a look at your current account. That’s the account where your salary comes in and where expenses like rent, energy bills, streaming subscriptions and insurance are paid from. It’s the place where all your income and spending come together.

By creating a simple overview of the money going in and out of this account, patterns start to emerge. What do you spend money on regularly? Which costs are fixed, and which are flexible? And are there small adjustments you could make that would still have a meaningful impact?

Interest and compound interest: the role time plays

Interest is, simply put, the price paid for borrowing money. If you borrow money, you pay interest. If you lend money, you receive interest.

When you take out a loan — or lend money to someone else — it’s important to understand the effect of compound interest. This is the process where interest is added not only to the original amount, but also to the interest that has already accumulated.

Over time, this effect becomes more powerful. The longer a loan remains outstanding, the more interest builds up on top of it.

If you’re the borrower, compound interest means the amount you owe keeps growing. If you’re the lender, it works in your favour and your returns increase. In both cases, time is the decisive factor.

Returns: what investing can deliver

For investors, “returns” are a key concept. They describe the outcome of your investments.

Put simply, your return is the difference between the price you paid for an investment and what that investment is worth at a given moment.

Returns are therefore a snapshot in time and constantly changing. They can be positive (a gain) or negative (a loss). You only actually realise a profit or a loss when you sell your investments.

Just like interest, returns can build on themselves over time. This is known as the return-on-return effect, where gains you’ve already made can generate additional returns. It’s important to remember, however, that returns can also move in the opposite direction.

Debt: when does it become a problem?

Debt becomes a problem when you lose oversight and are no longer able to repay what you owe, including interest. It becomes especially burdensome when repayments take up a large part of your monthly budget, leaving you with less and less financial breathing room.

Because debt problems can escalate quickly, it’s important to act as early as possible. If you notice that repaying your debts is becoming difficult, take action straight away:

• Contact Geldfit, the Dutch starting point for questions or concerns about money. They provide information in English too.

• Get in touch with your local municipality, which can offer advice and access to debt counselling or debt restructuring support

Taking early steps can help prevent the situation from becoming more stressful or harder to resolve later on.

Inflation: how money loses value

Inflation is the devaluation of money. Inflation occurs when products and services become more expensive, meaning you can buy less with the same amount of money.Inflation can also cause your savings to lose value. This happens when inflation is higher than the interest rate you receive from the bank on your savings. 

Saving and investing: money for later

Saving and investing are both done for your financial future, but with different goals. Saving is mainly for security: so you don't have to stress if you suddenly have to make a large expenditure.

Investing is mainly about building up long-term capital. Investing involves risks and you pay costs that do not apply to saving. On the other hand, investing can yield attractive returns in the long term.  

If you know exactly what you are saving and investing for, you are consciously working on your financial future. 

Investing involves different costs and risks than saving, and you could lose some or all of the money you invest.

Being good with money starts with financial knowledge

You don’t need to follow a complex course or get a finance degree to improve your financial knowledge. Simply understanding a few key concepts and having insight into your own finances can already make a real difference.

Small steps matter. And remember: being good with money doesn’t mean doing everything perfectly. It’s about making conscious choices. That mindset helps you feel more at ease with money over time and take responsibility for your financial future — which is exactly what the Good with Money challenge is about.