10 personal finance basics

Featured

Written by:

Despite how important money is in life, personal finance know-how — or “financial literacy” — is not typically taught in schools, or necessarily by parents. Unfortunately, a lack of financial knowledge — and, as a result, planning — has led to many young adults racking up credit card debt, living paycheck to paycheck, and not saving enough for retirement.

The good news is that many money issues can be solved just by getting back to personal finance basics — the basics you likely never learned in high school, like how to set up a budget or the best way to knock down debt.

______________________

SPONSORED: Find a Qualified Financial Advisor

1. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.

2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you're ready to be matched with local advisors that can help you achieve your financial goals get started now.

______________________

 

 

 

Gaining financial literacy can help more than just your wallet. A 2021 study by the Financial Industry Regulatory Authority (FINRA)  found that people who were able to answer three questions that measured basic financial literacy correctly were significantly less likely to feel financially stressed or anxious.

Here are 10 personal finance basics that can help you become more organized with your money, feel less financially stressed, and achieve your goals.

Related: Can you use your spouse’s income for a personal loan?

Personal Finance Definition

Personal finance is a term that involves managing your money and planning for your future. It encompasses spending, saving, investing, insurance, mortgages, banking, taxes and retirement planning.

Personal finance is also about reaching personal financial goals, whether that’s having enough for short-term wants like going on a vacation or buying a car, or for the longer term, like saving enough for your child’s college education and retirement.

Top 10 Basics of Personal Finance

1. Budgeting Is You Friend

Budgeting and learning how to balance your bank account can be key to making sure what’s going out of your account each month isn’t exceeding what’s coming in. Winging it — and simply hoping it all works out at the end of the month — can lead to bank fees and credit card debt, and keep you from achieving your savings goals.

You can get a quick handle on your finances by going through your statements for the past several months and making a list of your average monthly income (after taxes), as well as your average monthly spending.

It can be helpful to break spending down into categories that include basic needs (e.g., rent, utilities, groceries) and discretionary spending (e.g., shopping, travel, Netflix). To get a real handle on where your money is going every day, you may want to track your spending for a month or so, either with a diary or an app on your phone.

Once you know everything that typically comes in and goes each month, you can see if you’re going backward, staying even, or ideally, getting ahead by putting money into savings each month.

If you aren’t living within your means, or you’d like to free up more cash for saving, a good first step is to go through your budget and look for ways to cut back discretionary spending. Can you cook more instead of going out? Buy less clothing? Cut out cable? Quit the gym and work out at home?

You can also consider ways to bring in more income, such as asking for a raise or starting a side hustle from home.

2. Building an Emergency Fund

You can’t predict when your car will break down or when you’ll have to make an emergency trip to the dentist. If you don’t have money saved up for what life throws at you, you can risk racking up high-interest credit card debt or defaulting on your bills.

To avoid this, you may want to start putting some money aside every month to build an emergency fund. A common rule of thumb is to keep three to six months of basic living expenses set aside in a separate savings account.

It can be a good idea to choose an account where the money can earn interest, but you can easily access it if you need it. Good options include a high-yield savings account, online savings account or cash management account.

3. Avoiding a Credit Card Balance

When you have a credit card at your disposal, it can be tempting to charge more than you can afford. But carrying a balance from month to month makes those purchases considerably more expensive than they started. The reason is that credit cards have some of the highest interest rates out there, often over 16%. That means a small charge carried over several months can quickly balloon into a much larger sum. The same is true for other high-interest debt, such as some private or payday loans.

If you already have high-interest debt, however, you don’t need to panic. There are ways to pay off that debt.

The avalanche method, for example, requires paying the minimums to all your creditors and putting any extra money toward the debt with the highest interest rate first. Once that’s paid off, the borrower puts their extra cash toward the debt with the next highest rate, and so on.

4. Paying Your Bills on Time

If you miss bill payments or make late payments, your creditors might impose late payment penalties. If you delay payment for a prolonged period, your account could go into delinquency or be sent to collections.

Late payments can also affect your credit score — the number lenders use to help judge whether to give you loans and credit. Your payment history accounts for 35% of your credit score, so a history of late and missed bill payments can be a major strike against your score. A poor credit score can make it difficult for you to get loans, and the loans you do get are likely to have higher interest rates.

To make sure you never miss a due date, it can be helpful to make a list of your bills and their due dates, set up auto payments when possible, and sign up for reminders.

5. Starting Early to Save for Retirement

When you’re young, retirement can feel far away. But putting money away as early as possible means you’ll have more years to save, spreading the savings across your life rather than racing to catch up.

Perhaps the biggest reason to start as early as you can, however, is the power of compound interest. Because you earn interest not only on your contributions but also on accumulated interest, small amounts can grow over time. If you have an employer-sponsored plan, such as a 401(k), you may want to consider contributing, especially if your employer offers to match your contributions.

Depending on your situation, you may be able to open a traditional IRA, Roth IRA, or SEP IRA as well.

6. Investing

Saving for retirement may not be enough for you to have what you need to live comfortably after you stop working. Plus, there may be things you want to be able to afford later in life, but before you reach retirement age. If you have children, for example, you may want to start a 529 plan to help you invest for their college educations.

For other long-term savings goals, you may want to invest additional money, keeping in mind that all investments have some level of risk and the market is volatile, meaning it moves up and down over time.

To get started with investing, you can choose a financial firm you want to work with and then open a standard brokerage account. From there, you can put your money in a mutual fund or an exchange-traded fund (which bundles different types of investments together), or, if you’re prepared to do a fair amount of research, pick and choose your own stocks and bonds.

7. Getting Insured

When it comes to insurance, sometimes it’s best to prepare for the worst. That means making sure you have health insurance and car insurance (which is required by law). You also may want to consider renters or homeowners insurance to protect your home and belongings.

If you have children or other people who are dependent on you financially, it can be a good idea to get long-term disability insurance and term life insurance. Many people can purchase health and disability insurance through their employers. If you don’t have that option, it’s possible to go through an insurance agent, broker or the insurance company directly.

8. Taking Advantage of Credit Card Rewards

If you have a decent credit score, you can look into getting a credit card with rewards that may give you travel miles or cashback on your purchases. If travel is your priority, you may want to look for a flexible travel rewards credit card, meaning their rewards can be applied to many different airlines and hotels.

You may want to look for a card that not only offers rewards but also offers a nice signup bonus for spending a certain amount within the first few months. One with no annual fee would be ideal, too.

Whichever card you pick, it’s a good idea to familiarize yourself with its rewards program: the value of its rewards units (points, miles or cashback), how to redeem them, whether your rewards expire, and any minimum redemption amounts.

You may also want to keep in mind that credit card interest rates are typically a lot higher than credit card rewards rates. So, to avoid seeing your earnings swallowed up by finance charges, it can be wise to make sure to pay your full statement balance by the due date every month.

9. Checking Your Credit Reports Regularly

You can request a credit report for free from the three main credit reporting agencies — Equifax, Experian, and TransUnion — at AnnualCreditReport.com. In the past, you could only do this once a year, but due to the COVID-19 pandemic, the three credit agencies are now offering free weekly credit report checks.

It can be a good idea to periodically order a copy of your report and then scan it for any errors or signs of fraudulent activity. If you see anything that isn’t right, it’s wise to contact the credit reporting agency or the account provider as soon as possible and file a formal dispute if needed.

Checking your report can help you spot — and quickly address — identify theft. It can also help you make sure there aren’t any errors on the report that could negatively affect your credit score. If you ever want to obtain a lease, mortgage, or any other type of financing, then you’ll likely need a solid credit report.

10. Choosing Your Bank Wisely

There are lots of financial institutions out there, so it can be a good idea to shop around and make sure you find a place that really suits your financial needs. Choices include:

  • A traditional Bank. These typically have physical locations throughout the country and offer a wide range of financial products and services. If you want to know you can have an in-person chat about your money, this option might work well for you.
  • Credit Union. These are non-profit organizations owned by the members of the union. They’re similar to a traditional bank, but membership is required to join, and they’re often smaller in scale and have fewer in-person locations. However, they may have lower fees and higher interest rates than a traditional bank.
  • Online Bank. These institutions don’t usually have any in-person locations — everything happens online. Because of this, they often have very competitive fees and interest rates. If you don’t necessarily need in-person money talk and would prefer to handle your money at home (or on the go), an online bank could be a great option.

When making a bank choice, it can be a good idea to make sure the bank you choose has a user-friendly website and app, as well as conveniently located ATMs that won’t charge you a fee for accessing your money.

3 Personal Finance Rules to Know

Once you’ve established some fundamental procedures, you can start thinking about some overarching rules that can help you make better money decisions. Three rules you may want to keep in mind include:

  • Keep your goals in mind. Without a clear set of goals, it can be difficult to do the hard work of budgeting and saving. Defining a few specific goals — whether it’s buying a home in five years or being able to retire at 50 — gives you a picture of what personal financial success looks like to you, and can keep you motivated.
  • Learn to distinguish wants from needs. Merging these two concepts can wreak havoc on your personal finances. Needs generally include food, clothing, shelter, health care, and reliable transportation. Everything else is likely a want. This doesn’t mean you have wants, but it can be important not to trade financial security in pursuit of these things.
  • Always pay yourself first. This means taking some money out of each paycheck right off the bat and putting it toward your future goals. Setting aside money in a savings account, IRA or 401K plan via automatic payroll deductions helps reduce the temptation to spend first and save later.

The Takeaway

Being good with your money requires a set of basic skills that many of us were never actually taught in school. Fortunately, It’s never too late to educate yourself about personal money management. Learning personal finance basics like how to choose a bank, set up a budget, save for retirement, monitor your credit, avoid (and deal with) high-interest debt, and invest your money are key to reaching your goals and building wealth over time.

Learn More:

This article
originally appeared on 
SoFi.com and was
syndicated by
MediaFeed.org.


SoFi Money
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA  SIPC  . Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website  
.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Invest
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA  SIPC  . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

More from Mediafeed:

50 money resolutions for the new year

50 money resolutions for the new year

As the new year begins, it’s time to make financial resolutions for the coming year (and decade). When building your list of financial goals for 2021, it’s important to look back on all the money things you did or didn’t do last year.

If you don’t know where to begin, we’ve got you covered. Here are 50 personal finance resolutions for 2021, and beyond.

Kameleon007

Money tips don’t have to cost you. Check out this free weekly newsletter — it includes money tips, money news and money moves sent right to your inbox.

Depositphotos

Brush up on your money knowledge with a good book. Check out these recommendations if you’re not sure where to start.

DepositPhotos.com

Having trouble keeping a budget, tracking your bills or setting money aside for a rainy day? Consider downloading a financial app on your phone. Many link to your bank accounts and get a holistic view of your finances. You’ll always know what you’re spending, what you’re saving and how you’re stacking up against your goals. Here’s a breakdown of the best free budgeting apps.

istockphoto

Paper is out, and plastic is in: Credit cards and mobile wallets are not only more popular than cash, they often offer rewards and make it easier to track your spending. Ditching cash also means a thinner wallet and less receipts (which is better for the environment!). Learn how to go digital with your money.

Chainarong Prasertthai / istockphoto

Some personal finance experts encourage cutting back on small purchases, like your morning coffee, to reach a money goal. The reality? Larger financial decisions, like buying a house or car, will more drastically move the needle in your financial life. If you struggle with debt or saving for retirement, consider focusing on the bigger picture. But, it’s also important to …

jacoblund

Review your monthly expenses. Are you paying for subscriptions you aren’t utilizing? This year cancel the ones that aren’t getting used, like that pricey gym membership.

Streaming was supposed to allow you to cut the cable cord, but with so many options, it might be time to cut some streaming options. Netflix, Hulu, Disney+, HBO…do you really need all of them? Probably not.

DepositPhotos.com

Your employer’s open enrollment period is an opportunity to change or update your existing employee benefits. Use this time to assess how your lifestyle may have changed over the past year. You might find that you need to increase your life insurance or disability insurance coverage, switch to a new health care plan or open a health savings account.

DepositPhotos.com

Workplace coverage is typically not enough and won’t stick with you if you change jobs. You can use this free Pricing Widget to get an idea of how much you’ll pay for coverage.

Geber86

Re-shopping your auto insurance every year can help you save money, as rates constantly fluctuate. Shopping around with different insurance carriers will make sure you have the best rates possible.

DepositPhotos.com

monkeybusinessimages

If you have health insurance, a yearly physical is covered, but urgent care visits may not be. Be sure to keep up with your regular checkups and raise any health concerns as soon as they come up, instead of waiting until there’s an issue.

DepositPhotos.com

Health savings accounts are valuable. They can be used to pay for a number of medical expenses, there are numerous tax advantages and the balance in your account can be carried over from year to year. Consider making the $3,500 maximum annual contribution to your HSA if you’re under 55 (or $4,500 if you’re over 55).

DepositPhotos.com

The holidays aren’t cheap: There are presents to buy, dinners to prepare, travel plans to book … the list goes on. Using a budgeting spreadsheet specifically for the holidays (like this one) is the easiest way to stay on top of spending and out of the red.

tommaso79 / istockphoto

This includes credit card debt and personal loans. Here are nine ways to pay off your debt in 30 days.

DepositPhotos.com

If you’re mostly debt-free, start diverting 20% of your income from each paycheck into a rainy day fund or towards a money goal, like …

DepositPhotos.com

Do you have a stable job and plan on staying put for the long haul? Start saving for a down payment on a home. Mortgage rates are the lowest they’ve been in years, and although housing prices skyrocketed since 2010, rent has gone up even higher.

DepositPhotos.com

It may be time to get your credit back in shape for in 2020. Start by paying off your balances, but also look for any mistakes that may have appeared on your credit report.

depositphotos.com

Do you know what’s in your credit card agreement? Most don’t read these lengthy documents, but they do contain important information, like how much interest you’re paying and the penalty for missing a payment. Here’s a guide to understanding one.

DepositPhotos.com

If you’re in good standing with your credit card, it may be time to request a credit limit increase. Having a higher limit can boost your credit score as long as you don’t increase your spending or start carrying a higher balance. Some banks don’t pull your credit report when considering your request, and so there’s also no risk of hurting your score by asking for more than you actually need.

DepositPhotos.com

While spending money with a credit card, you might as well be getting something in return. Credit card rewards can help you do that. Learn how to maximize them here.

DepositPhotos.com

You can get your credit reports for free from the three major credit bureaus — Equifax, Experian and TransUnion — via AnnualCreditReport.com.

DepositPhotos.com

If your credit is good and your spending habits are in check, consider upgrading to a more lucrative rewards credit card. Many issuers offer sign-up bonuses to new cardholders who spend a certain amount of money in a set period of time. These bonuses are often worthwhile if that spending threshold aligns with your current habits.

DepositPhotos.com

Whether you’re trying to climb the ladder, improve a skill set or ask for a raise, set some career goals for the new year. Retired? Your goal could be to give back.

DragonImages

Even if you’re happy in your current role, you never know when you could be job hunting again. For that reason, it’s important to have a robust professional network, and the best way to build one up is by regularly hosting informational interviews with those in your field.

DepositPhotos.com

If you hope to change positions in 2020, make sure you go into negotiations with a plan. Read up on these tips and tricks before you sign the dotted line.

Milkos / istockphoto

Not all of us take advantage of the great professional opportunities at conferences. Step one to making the most of a conference: learning the best ways to network.

DepositPhotos.com

Want help with your most important money resolutions during the first few weeks of January? Sign up for the Easy Money Bootcamp. By sharing your email address, you’ll get informative emails sent right to your inbox.

DepositPhotos.com

Even increasing your contribution up a percentage point can save you big in the long run, thanks to compounding interest. At the very least, try and match up to what your employer offers.

nevarpp / istockphoto

When you leave your job, you’re no longer allowed to contribute to your current 401(k). Consider a 401(k) rollover — you can continue to add money to your account and you’ll likely have a broader selection of investments.

andresr

The annual 401(k) contribution limit is $19,500 in 2020. If you want to save even more money for retirement, consider a Roth IRA, which has a contribution limit of $6,000. Roth IRA contributions are made with post-tax money, but, unlike a 401(k), you won’t be taxed when you withdraw from the account in retirement.

LightFieldStudios

Finding a new side hustle is as easy as downloading a new app. If you’re looking to boost your income quickly, try driving, delivering or walking dogs on the side. Rather stay home? There are plenty of opportunities for remote work, too.

DepositPhotos.com

Investing can earn you significantly more than what you get from a savings account, thanks to higher returns. Investing is necessary if you want to have enough saved for retirement, and you can also use it to save for big money moves, like the down payment on a new home. Investing is also easier than ever. Start with just $1 on some of this year’s best investing apps.

DepositPhotos.com

As part of your job, you may be offered some stock options for employees. The terms may be confusing at first, so take time to understand the key terms and time limits available.

DepositPhotos.com

Online banks offer similar services to traditional brick-and-mortar banks, but they often have better interest rates on their savings accounts. Just don’t forget to switch your automatic payments to the new account.

DepositPhotos.com

Earn (a little more) interest on your emergency savings by opening an account with an online bank that pays a higher interest rate than a traditional savings account. Learn about high-yield savings accounts.

DepositPhotos.com

This year, a handful of brokers introduced no-fee trading. If you haven’t gotten on the train yet, now’s the time to check the fine print and make sure you’re not getting dinged.

DepositPhotos.com

When the Federal Reserve lowers interest rates, consumers and borrowers get a boost in the form of a lower credit card APR and lower rates on mortgages and other loans. Consider using a period of low interest rates as an opportunity to refinance your mortgage or consolidate your debt.

Getty

Want to pick up a new skill this year? You won’t find one much more valuable than coding. If you’re worried about not having enough time, freeCodeCamp is self-paced and, as the name implies, costs nothing.

DepositPhotos.com

If you’re not already cooking for yourself, make it a goal for the coming year. Not only does making home cooked meals save you money over eating out or getting delivery, cooking is also a great skill to have. And the more you do it, the better you’ll get. Best of all? You can learn to cook for free by watching cooking videos online or reading detailed recipes.

UberImages / istockphoto

You pay as much as 15% higher than what you’d pay for the same food outside the airport. Bring your own. Leave room for food containers in your luggage and bring an empty bottle of water to fill.

ADragan / istockphoto

If you drive to work, consider taking public transit instead. A train ride or bus pass is typically less expensive than paying for gas and tolls. If public transit isn’t an option, consider carpooling with a coworker. That way you split the driving expenses and lessen your carbon footprint.

DepositPhotos.com

It’s easy to spend with no end in sight when all it takes is the click of a button. Buying things in person will limit how much you’re buying and curbs impulse purchases.

Kit L. / istockphoto

If you’re purging your home of clutter in 2020, consider selling your possessions before tossing anything. There’s a chance you could make money off those old clothes, books or furniture.

David Sacks

If you’ve received a holiday bonus, a big tax refund or a pay raise at work, be mindful of lifestyle creep, which can quickly eat up your extra income. The best way to prevent that from happening? Make sure you pay yourself first by tackling any debt and automating your savings.

DepositPhotos.com

While a presidential election is coming up next year, it’s also important to exercise your right to vote in local elections as well. Policy changes — from taxes to zoning to the state of our health care system — at every level can impact your wallet.

DepositPhotos.com

Pledge to give back more in the new decade. Not sure where to donate? RIP Medical Debt is helping forgive millions of dollars in medical debt.

photosbyhope / istockphoto

If you have the same password for multiple financial sites, it’s time for a change. A password manager will create a strong password for every site, without requiring you to remember them all yourself. There are free password managers, and some specifically designed to help your whole family stay safe online.

istockphoto

If deep cleaning your apartment comes at great psychological cost, it isn’t so bad to spend some money on a cleaning lady — just budget accordingly. Saving and spending wisely isn’t about abandoning every expense, but rather, figuring out what expenses are worth it for you.

DepositPhotos.com

An estate plan lays out who gets what when you pass away, and how you want people to handle your things if you can’t do so yourself. The topic of death can be frightening, but you will feel more at ease knowing your loved ones and possessions are taken care of. The best place to start is by writing a will.

This article originally appeared in Policygenius and was syndicated by MediaFeed.org.

Serenethos / istockphoto

Featured Image Credit: simpson33/ istockphoto.

AlertMe