You may have passed basic algebra, but you might have realized that your primary education left some gaps in the practical applications of every day life. Once you find yourself juggling rent, insurance, utilities, debt, and the rest of life’s needs and wants, you might wish your education came with a bit more instruction on how to manage your money.
Here are the school finance lessons you wish you had to teach you how to manage your money and ace your financial future.
1. Pay Yourself First.
No one else will make you take your personal finances seriously, so you must start each money management conversation with the thought that you must pay yourself first. But what does this mean?
It means taking a portion of your monthly income and put it into a savings account, a retirement account, or setting aside for long-term financial goals.
And don’t stress: You don’t have to save big portions of your paycheck to make a difference. Commit to putting back 1-5% of your monthly income.
That steady trickle will add up, and you’ll be in a much better position financially before you realize it.
2. Learn How To Answer, “Can I Afford This?”
Here’s a simple rule to know if you can easily afford something: If you have to check your account to make sure you have enough money – you don’t.
Unless you know for sure a purchase will not impact your bottom line without reviewing what has cleared and what is left in your account, it can and should wait.
With this principle, you’ll never ask yourself again if you can afford a purchase – you’ll just know how to manage your money well.
3. Know Where Your Money Is Going.
Some people may think it is antiquated to keep a register. It’s essential to understand how to manage your money. One of the things that online banking can’t show is outstanding transactions which could cause non-sufficient funds if they just use the balance shown on online banking.
Set a time each month to create a budget and review the expenses of the previous month. Look for trends and the amount you spend each month on necessary (and not necessary) items. Cut out the unnecessary expenses for a healthier bank account.
4. Build Your Emergency Fund First.
Speaking of savings, build up an account to serve as an emergency fund. Work towards having three to six months’ worth of needed income in the emergency fund to be able to withstand most emergencies life can throw at you.
But, even $1,000 in an emergency fund will provide stress relief from emergencies that will crop up in life.
5. Understand Compound Interest and Get Some For Yourself.
Compound interest is money earned off the interest on your money. This means the money you initially save in an interest-bearing account will increase because the account pays interest.
Then, that new total begins to grow as interest is earned on the new total, which includes the initial interest. Many people underestimate the power of compound interest because it seems like a small amount of money. But over time, that small amount can grow exponentially.
6. Protect and Build Your Credit.
Your credit score may determine what your buying power will be on large purchases. Bad credit may equal a larger payment due to higher interest rates on a loan.
A good credit score may allow for larger credit amounts, smaller interest payments, or shorter loan notes. Building your credit is a slow process to prove your creditworthiness, but destroying your credit can happen much faster.
Check out this NerdWallet article for more tips to build your credit.
7. Get Insurance to Protect Yourself and Your Assets.
Insurance can feel like a costly expense with no immediate return. In the case of an accident or emergency, you will thank yourself ten times over for planning ahead.
Auto insurance protects your vehicle in the case of an accident without having to pay the entire cost out of pocket. Health insurance assists with regular health care costs and in the case of a medical emergency without drowning in thousands of dollars in debt. HealthCare.gov provides a guide on how to find affordable health care coverage.
If you have dependents, a life insurance policy will provide for them in the tragedy of your death. This will provide you peace of mind now and security for them later.
Any of these areas can financially ruin you if you do not have insurance to cover part of the expense when you need it. Consider it all an investment to be prepared for future financial disasters.
8. Understand Tax Basics (and Pay Them)
Taxes are taken out of every paycheck. Make sure you understand how much will be deducted from your paycheck each month. Only budget on your take-home pay, after taxes.
Make sure your paycheck has enough withheld to avoid paying a large sum at the end of tax season – when you might not be as prepared for that tax bill.
Be sure to prepare, file and pay your taxes on time every year. The state and federal government may work with you on tax debts, but it is much easier, less expensive and less stressful to stay current.
By utilizing these tips you will be managing your money like a pro in no time. To learn more personal finance basics, read more of our helpful articles.
This article is for educational purposes only. Tulsa FCU makes no representations as to the accuracy, completeness, or specific suitability of any information presented. Information provided should not be relied on or interpreted as legal, tax or financial advice. Nor does the information directly relate to our products and/or services terms and conditions.