Financial Life Skills We Wish We Knew Earlier
When was the last time you used the Dewey Decimal System to find a great new novel? Or the last time you referenced an element’s atomic number on the periodic table? Even though money management is a huge part of life, it seems like you’re on your own to learn how to navigate the maze of personal finance.
If you didn’t acquire real-life financial skills in school, you’re not the only one who could use a little Money 101. We’ll break down five of the most crucial financial skills in life that you should master now.
1. How to Use Credit Wisely
Credit can be a useful tool, especially when your score is high enough to allow you to access better offers and opportunities. But if you have poor credit, you may have a harder time getting approval for loans, leasing an apartment or even securing employment. That’s right: Some prospective employers take a look at your credit report, especially for positions in finance, banking or similar fields.
When you’re just starting out, you need to open a bank account and apply for some form of credit, like a beginner credit card. You can also find secured credit cards that require a deposit, which are great for those just starting to build credit. Or, if you have a good history with your bank, you can also apply for a bank credit card.
In any case, when you use your credit card, you should always aim to pay the balance in full each month to avoid falling behind. If not, you’ll pay interest, depending on the credit card’s terms, and will end up spending more for your purchase than you would have if you paid in cash.
While it may seem counterintuitive, aim to use credit cards in the same way you use cash: Only buy what you have money to pay for right now. That way, you can afford to pay your balance in full. The same basic principle applies to other forms of credit — use only what you can responsibly pay back, and always make your payments on time.
2. How to Check Your Credit Report
Protect yourself and your identity from unauthorized credit usage or incorrect reporting by monitoring your credit report. You should check your credit score on a regular basis, even if you’re not actively using credit. Checking your score is free. Additionally, some banks offer credit alerts or you could use a premium service that actively monitors changes affecting your score and report. However you access your score, be sure to make it a habit.
Identity theft can happen to you even if you’re not a victim of a mass data breach that’s made global headlines. If you see something that’s inaccurate or fraudulent on your credit report, you should dispute any incorrect information to correct the issue. You can also freeze your credit to prevent further fraudulent activity.
3. How to Budget Properly
Not following a budget is like preparing a meal without a recipe; you might be able to get by, but you can easily lose track of what you have and what you actually need to make it work. Without a budget, you won’t know what lifestyle you can sustain while saving for the future. You can easily set up your own budget worksheet to track your income and expenses. Whether you’re just starting off your career or trying to pay off debt, the 50-30-20 rule is a solid budgeting rule of thumb to ensure you’re not living beyond your means.
4. How to Balance a Checkbook
While some older adults learned how to balance a checkbook in high school, this skill is missing from today’s curriculum. Knowing what goes in and out of your account each month can help you avoid overdraft fees, double-check your bank’s accounting and help you scour your accounts for fraudulent activity. But you don’t have to manually balance your checkbook; if you’re properly managing your budget (see previous step), you should have all your expenses and income neatly prepared in a spreadsheet. Balancing your checkbook just means that you’re verifying this information against your bank statement for accuracy.
5. How to Utilize Compound Interest
While Social Security benefits are available for older Americans, the amount you receive might not sustain your current quality of life years down the line. If you haven’t already, you should start saving for retirement now. Starting early can increase your quality of life in retirement while also giving you peace of mind for the future. More importantly, you can utilize the power of compound interest, or adding interest on top of interest. This means that your invested money is actually helping you earn more money. Opening your own high-interest savings account or IRA (individual retirement account) are two ways to start earning compound interest.