Everyone understands the importance of learning certain financial skills, but not everyone knows where to begin. In order to eliminate debt and make informed money management decisions, there are a few fundamental factors to consider. We explore the 5 financial skills every person should have below.
1. Calculate your Discretionary Spend
In simpler terms…create a budget! This may seem simple, but without a clear idea of your spendings, you will not be able to save. A budget is a simple way to understand how much money you have coming in and going out. A detailed budget is necessary to decide where you want your money to actually go. The most common mistake young adults make is using their checking account balance as a gauge of how much money they have available to spend.
How to start tracking your expenses:
- Write out a list of all your income
- Write out a list of all your expenses
- Create categories such as food, clothing, pets, entertainment, transportation, housing, etc
- Allocate a set amount of money to each of these categories (check your credit card statements to get accurate estimations)
- Monitor spending throughout the month
2. Understanding Wants vs. Needs
There is almost no limit to bigger and better stuff that you could want to buy. However, it is important to distinguish between wants and needs when trying to make positive financial decisions. At the most basic level, needs are the things that we need in order to sustain day-to-day life. Everything else can be categorized as a want. When money is tight, it is important to put those wants on hold.
3. Build a Positive Credit Score
A positive credit score is necessary to meet future goals. In order to maintain a positive credit history, our experts suggest the following:
- Only borrow what you can afford
- Pay bills on time, every time
- Start with only one credit card
- Keep accounts open to build a lengthy credit histor
- Request a credit limit increase
High credit scores mean that you have demonstrated responsible credit behavior which may make potential lenders more confident when evaluating your request for credit.
4. Know Bank Accounting Basics
Understanding the bank lingo can help you manage your income and expenses more effectively while avoiding pointless fees. Don’t be intimidated by your bank account.
- Minimum balance requirements: keep X amount of money in your account at all times to avoid certain fees
- Overdraft fees: when you don’t have enough money in your account to cover a transaction or withdrawal, but your bank allows it to happen anyways and lends that specific amount to you in the form of a loan. There is usually a fee per overdraft, which can run upwards of $35. Service fees:
- Monthly maintenance/service fees
- Out of network ATM fees
- Monthly maintenance/service fees
- Excessive transaction fees
- Insufficient fund fees
- Wire transfer fees
- Early account closing fee
5. Be As Efficient As You Can Be
Efficiency pays back over time. It can mean implementing small changes in your day to day life to waste less money.
- Doing things yourself instead of paying for it: learn how to get handy around your house so you don’t have to pay someone else to get the task done for you. Cooking at home is another great option to be efficient with food costs.
- Plan: make a single grocery trip instead of multiple, live in a smaller house to pay less mortgage and utilities.
- Resource: use LED bulbs to save on lighting in the future, cut down on the amount of junk in your house, consolidate on certain products (cleaning, makeup, kitchen, etc). Again, this goes back to wants v. needs.
- Refer back to your budgeting lists. Reflect on this at the beginning, middle, and end of the month to make sure you are staying on track. There are a number of apps that can help you keep track of your budget: Mint, YNAB, and Pocket Guard.
Financial skills take time and effort to build. As you learn more about money management, you will become better at saving. If you are stuck in credit card debt and need a solution, Assure Debt Solutions is here to tailor a personalized plan to get you out of debt. Call us today!