Personal Finance and Economics Essentials

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Personal Finance

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Management of individual or family financial activities, including budgeting, saving, and investing.

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Opportunity Cost

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The value of the next best alternative foregone when making a decision.

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Compound Interest Formula

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A = P(1 + \frac{r}{n})^{nt}, where A is the amount, P is the principal, r is the rate, n is the number of times interest applied per time period, t is the time.

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Budgeting

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The process of creating a plan to spend your money.

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Inflation

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The rate at which the general level of prices for goods and services rises, eroding purchasing power.

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Risk and Return

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The principle that potential return rises with an increase in risk.

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Diversification

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A risk management strategy that mixes a wide variety of investments within a portfolio.

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Time Value of Money

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The concept that money available now is worth more than the same amount in the future due to its earning potential.

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Supply and Demand

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Economic model of price determination in a market.

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Liquidity

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The ease with which an asset can be converted into cash without affecting its market price.