Financial literacy starts with a basic understanding of how money works. Understanding the power of leverage, compound interest and the time-value of money is essential; knowing how these concepts apply to real life, day-to-day financial decisions is critical. For example, four common habits keep many people from building wealth.

The first is purchasing a lot of items that depreciate. Cars, boats, mobile homes and electronic devices lose value the minute you drive them off the lot, place them in the water or take them out of their packaging. People who have a houseful of these items have spent a lot of money but gained little value. Cars are one of the biggest wealth grabbers; a new car loses 10 percent of its value the minute it leaves the lot and can lose as much as 75 percent of its value over the course of five years.

Compounding the problem of depreciation are the added costs of required maintenance and optional upgrades, such as new rims, undercarriage lights, tinted windows and custom painting. Financially, these enhancements are the equivalent of putting lipstick on a pig. The significant difference is that as a pig grows, it appreciates in value, and can become bacon, sausage, and barbecue. Jazzing up a vehicle doesn't add to its actual value.

While owning a vehicle is a must for most people, buying a brand-new one isn't mandatory. Let the first buyer take the depreciation hit; a one or two-year-old vehicle still has a lot of miles to go, and many come with factory warranties still intact. The same goes for a boat, motorcycle or motorhome.

As for purchasing a mobile home, this may be a good option if the only alternative available is renting an apartment or house. The mobile home itself will depreciate, but the land underneath the mobile will retain its value and possibly have some upside potential.

A second habit that costs money is being cash-heavy. That seems counterintuitive, but the value of cash left in your savings account increases at a rate lower than that of inflation. Current savings rates at traditional banks, for example, have hovered around 0.10%. During the past 10 years, the average annual inflation rate has been 1.67%, according to the Consumer Price Index. That means that the purchasing power of money left in savings accounts has gone down by 1.50% every year since 2008.

While an individual should keep six months of expenses in a savings account for emergency purposes, they should put their additional disposable income to work to combat the erosion of purchasing power by inflation. Growth stocks or mutual funds and dividend-paying stocks that generate at least a 2.0% yield are investments that offer this protection. For the savvy investor, real estate is another inflation hedge.

At least consider putting savings into a virtual bank that has a solid financial foundation. Many internet banks offer savings rates between .90% and 1.50%, and the funds are as liquid as they would be if held locally. An emergency fund isn't an investment, but shopping for a favorable interest rate helps to grow that emergency fund with less effort.

When interest is being paid rather than coming in, it works against the payer. Interest paid on debt effectively raises the cost of the goods or services purchased on credit. The longer the loan is stretched out, the higher the price tag goes. For example, a student loan of $20,000 with an interest rate of 2.65 costs $29,239.00 if it is paid off using minimum payments for 266 months. That total goes down to $22,264.00 if payments are accelerated and completed in 120 months.

Student loans are among the least expensive forms of debt; the most costly include unsecured personal loans, title loans, payday loans, medical or dental loans, and revolving charge or credit cards. There may be times when carrying a debt load is necessary. Eliminating that debt load in the fastest time possible is the best option for maintaining financial health.

Finally, leasing or renting cars, furniture or appliances combines both depreciation and interest payouts into one significant financial drain. Items acquired on a lease basis depreciate as quickly as they would if the consumer were to purchase them outright. The difference is that the leasing company can use that depreciation to reduce its tax burden, while the consumer takes the hit regarding value. In addition, the monthly lease price is normally calculated by first marking up the retail price and then dividing the inflated price by the number of months in the lease. The markup often equals the purchase price of the item plus the prevailing credit card interest rate. A lessor pays the retail price plus interest for things that he or she may not own.

Leasing makes sense for big-ticket items that are used by a business but wouldn't make sense for the company to capitalize. For example, a warehouse operation that uses forklift trucks or a farmer who has the occasional need for a combine or thresher may be better off leasing this equipment instead of purchasing it. Equipment leases often include a provision for preventive maintenance by a specialized mechanic, and the leasing agency can buy OEM parts for the equipment at wholesale prices. Businesses also lease copiers and receive imaging volume discounts as well as the option to switch out the machines as the technology changes. For an individual, renting a car, furniture or appliances only makes sense if the person knows he or she will soon be relocating. For example, for the person who is transferred to work on a project for two or three months may consider renting an unfurnished apartment or room and then opting for short-term rental of furniture for that apartment. That eliminates the need to pack and move heavy furniture for a short assignment. Leasing items that the consumer will use for at least a year is money thrown away; the better option would be to purchase the same items gently used from a consignment store, or in the case of a vehicle, purchase used from a dealer or private party.

Money is a tool that should work for its owner. Eliminating the habits that covertly increase cash outflow will accelerate the growth of wealth and help that money to work harder.