Getting to know the basics of personal money management. 

Educators strive to include a diverse range of subjects in the mandatory curriculum for young adults. However, there is one important aspect of life for which students of all ages lack sufficient knowledge: personal money management a.k.a. financial literacy.

Now you might be wondering, “What is financial literacy?” Over the years following the money beat, we’ve amassed a wealth of expertise, from the thousands of “I got out of debt” success stories we’ve featured to the hundreds of psychological studies connecting improved financial decision-making to behavioural improvement.

Creating a financially stable life may seem to be a daunting task that necessitates the expertise of a skilled mapmaker and GPS programmer. You must decide where you are now and where you want to go. As if that wasn’t enough, you’re now in charge of determining the safest path from here to there without taking any unnecessary detours. Some objectives can take years, if not decades, to achieve. That was part of the plan all along! But there’s an instant payoff: you’ll feel a lot less depressed the moment you start taking care of all the money problems that have been troubling you with sound personal financial planning.

According to a 2019 poll, 9 out of 10 adults state that keeping their finances in order makes them happier and more optimistic. This guide will get you in the door.

#1. Prioritize Your Spending

A budget alone will not get you to your financial goals. Prioritize your spending to ensure that you are progressing rather than just keeping the status quo.

Create short-term goals for yourself, such as saving for a deposit on your first apartment or a car down payment, and make sure you put money away for them. Remember your forthcoming school costs and make sure you have enough money set aside to cover them. Grants and student loans do not offset the majority of the education costs.

#2. Consider an All-Cash Diet

If you have a habit of excessive spending, this will help you get out of it. You don’t believe us? Many people’s lives were forever changed by the cash diet. Go ahead and give it a try. We promise you it is a lot less scary than you imagine it to be.

#3. Start as Soon as You Can

Have you ever heard of the term “compound interest”? This process helps you to gain even more interest on your savings. The earlier you begin saving for retirement, the longer your money has to expand and benefit from compound interest.

Time is a powerful lead for your savings, so putting off saving for a few years might dramatically shrink the amount of your retirement nest egg. Compound interest will help you increase non-retirement savings as well. For instance, you may be putting money into a high-yield savings account to save for a down payment on a house. The higher your interest rate and the longer you invest, the more growth potential your money has.

#4. Spend Less Than You Make

This seems to be one of the easiest personal finance principles to obey, but it may also be one of the most complicated. In a consumer-driven world, it’s all too tempting to live beyond your means; a reasonable rule of thumb is to save at least 15% of your income. If you’re prone to overspending, consider paying for clothing and food with cash rather than a credit or debit card.

#5. Set Specific Financial Goals

To explain what you want to do with your money, use numbers and dates rather than just words. How much debt do you want to pay off, and when do you want to do it? How much do you want to save, and when do you want to save it?

#6. Think About Insurance

You were covered by your parents’ health and auto insurance when you were in school. It is important to ensure that you have adequate coverage after you graduate.

Check with your parents first to see if they can keep you on their health insurance while you are in school. Similarly, your parents may intend to keep you covered on their auto insurance when you’re at school, but you can’t count on it.

#7. Balance Your Checkbook and Use Money Apps

You can save money on overdraft fees by taking the time to balance your chequebook once a week. It will also assist you in avoiding a situation from which it will be difficult to recover. Since the balance at the ATM does not represent all of the money you’ve spent, it’s easy to overdraw your account without realizing it. It’s much easier to balance your account if you have an app that does both budgeting and account balancing.

#8. Build an Emergency Fund

Okay, you probably don’t need persuasion that getting some money set aside for life’s never-ending stream of financial curveballs — a pandemic layoff, deductible for an MRI on the knee you strained, fixing whatever the mechanic thinks is the source of your car’s problems — is maybe the greatest money stress reliever. Setting a target for how much security you want to create in an emergency fund is the first step. It’s a safe idea to have three months’ worth of living expenses invested in an emergency account at the very least; six months is even better.

#9. Save for Retirement

Even if you have decades before retirement, now is the perfect time to start investing. The longer you wait to get serious about this big target, the more you’ll have to put in to ensure a comfortable retirement.

There is no single rule on how much you can save for retirement, but a good rule of thumb is to set aside a multiple of your income at various ages. Having two times your income in your retirement account by the age of 35 sets you up for success. By the time you’re 50, you should have six times your annual salary saved up, and by the time you’re in your late 60s, you should have ten times your annual salary saved up.

#10. Be Smart With Your Money

When you graduate, make sure you’re making wise financial decisions. This involves paying the bills on time and weighing the pros and cons of taking on extra debt, such as for a vehicle or credit cards. Starting with good financial habits will help you create a strong base. You will be ahead because of your wise decisions, rather than wasting years suffering from errors.

 

What other top tips do you have for those learning the basics of personal finance?

 

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