Much of what experts call good money habits are unknown to millions who have never learned best practices for managing their money.
You're not alone if you don't understand much about personal finance. Unfortunately, many adults have yet to gain practical education in the field or, worse, have grown up with bad examples of how to manage money demonstrated to them. But, eventually, everyone finds out the truth about money. The question is only when and how much damage it inflicts upon you.
That's why it's never too early or late to learn these “must-know” money tips to take your finances to the next level.
The Must-Know Money Tips You Need
You don't need to rely on other people's ignorance to get ahead. Instead, rely on yourself and follow these money tips.
1. Set Money Goals
You can and should set some basic goals to help you make better money decisions, even when you are young and have little money experience.
Keep your goals in mind when making any money decision. Without a clear set of goals, it can be challenging to do the hard work of sticking to a budget and saving your money.
Defining a few specific goals, whether it's buying a new car now or home in five years or being able to retire at 50, can give you a picture of what personal financial success looks like to you and can keep you motivated.
2. Distinguish Between Wants and Needs
The merging of wants and needs can wreak havoc on your personal finances. Your needs generally include food, clothing, shelter, healthcare, and reliable basic transportation. Everything else is most likely a want. This isn't to say you can't have wants, but it is important not to forego financial security to pursue these things.
3. Put Yourself First
Perhaps you have heard this expressed as “pay yourself first”? This means taking some money out of each paycheck immediately and putting it towards your goals.
Setting aside money in a savings account, IRA, or 401(k) plan via automatic payroll deductions helps reduce the temptation to spend first and save later (if there's anything left).
When you are 18, 21, or even at age 30, you have no idea how much your future self depends on you to commit to this seemingly unimportant action.
As soon as you land your first “real job” and are eligible, you should start saving money for retirement. It seems strange to your younger self to think that way, but if you do, it makes the path to getting to it so much easier. Time can be your best friend or worst enemy regarding retirement planning.
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 as most eventually have to do. However, the biggest reason to start as early as possible is the power of compound interest, one of the most powerful wealth-building tools.
4. Budgeting is Essential
Budgeting is vital to ensuring what's going out of your account each month doesn't exceed what comes in. However, winging it and praying it all works out at the end of the month can lead to incurring debt which can keep you from reaching your financial goals.
It can be helpful to break spending down into budget categories, including your basic needs (rent, utilities, and groceries) and your discretionary spending (shopping for new clothes, travel, and Netflix.) Then, to get a real handle on where your money goes daily, try tracking your spending for a month or so, either on paper or using a mobile app.
Once you know everything that typically comes in and where it goes each month, you can see if you're going backward, staying even, or, ideally, getting ahead by putting money into savings and retirement 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 on discretionary spending.
Can you cook more instead of going out? Buy less clothing? Cut out cable? Cancel your gym membership and work out at home? You have that power only if you know what you have and where it goes.
5. Prepare for Emergencies
You can't predict when your car will break down or when you'll need an emergency root canal. If you don't have money saved up to handle what life throws at you, you risk racking up high-interest credit card debt or defaulting on your bills.
To avoid debt, start putting money aside monthly 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 that you only touch when an emergency occurs.
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
- An online savings account
- Any no-fee bank account
Remember, if you need to use some or all of your emergency funds, start rebuilding it as soon as possible.
None of these money tips are new or revolutionary. The fantastic thing about them is how often they are ignored and become a problem for regular people like you and me.
Being good with money requires basic skills that many of us were never taught in school. If you never learned them from your parents or mentor, you may be on the cusp of a financial disaster waiting to happen.
Fortunately, it's never too too late to educate yourself about personal money management. Learning personal finance basics and implementing these money tips will help you sleep peacefully at night and reach your personal finance goals to build wealth.
This article was produced and syndicated by Wealth of Geeks.