Everything I learned about personal finance I learned from… myself (more or less).
I wish I could say I was taught sound principles at a very young age, but the truth is, I’ve had to take the initiative to learn myself – or I wasn’t ever going to learn.
The fact is, many of us were never taught how to manage our money. Schools don’t teach personal finance and many parents either don’t pass along what they know or didn’t ever really learn it themselves.
Financial literacy is so important and there’s no better time than now to start learning.
Here are 5 Important, but Simple Principles that have served me well over the years and I hope will do the same for you.
1. Get your Credit Report Once a Year
If you’re lucky, you’ll be alerted immediately if there’s any suspicious activity on your accounts, but that’s not always the case.
There are plenty of instances where you may be the victim of identity theft or fraud and never even know it. But there is a solution.
One of the best things you can do to safeguard against this is to order your credit reports.
You’re entitled to receive a free credit report every year from each of the three main credit reporting companies, Equifax, Experian and Transunion, and you’d be wise to do so.
They each give you an overview of all of your credit accounts, the status of each and highlight anything negative that may be affecting your credit.
2. Maintain a Budget
Budgets get a bad rap, and rightfully so. They’re incredibly hard to stick with, and what works can differ greatly from person to person.
But the benefits of maintaining a budget – even a very loose and lenient one – are many. You’ll have a much better understanding of how much money is coming in, where your money is going and how much you have left over (if any).
Even if you can’t get yourself to stick with a budget forever, at least try it out for a month or two and track every dollar you spend. You’ll probably find out some pretty interesting information about how you spend your money.
3. Pay Your Bills in Full
This one may seem impossible for some, but if you’re not overextending yourself and spending less than you earn, it shouldn’t be too hard to do.
Paying your bills on time means you don’t have to pay interest, which can add up quite quickly every month.
4. Use Cash
Think you can’t pay your credit card bills in full every month? Then you could try using cash for everything you buy, instead.
This little trick – and it is quite the mind trick – is so effective at curbing spending, you may be happily surprised at how much less you buy because you’ll likely be less willing to pay for things when you have to fork over actual money.
5. Save for Retirement & Emergencies
Are you saving for retirement? How about emergencies?
If you haven’t been socking away any money for savings of any kind, start with your emergency fund first. It’s recommended that you save anywhere from 3-9 months’ expenses so that if, for example, you lose your job, you’ll have a financial cushion.
Once you have enough in your emergency fund, move on to saving for your retirement.
It’s so crucial that you start saving for these important things and that you start saving yesterday. The compound interest you’ll earn diminishes greatly every year that you wait to save, so you get more bang for your buck the sooner you get started.
I know everyone’s situation is different, and some of the things that have worked well for me may not work well for you. And really the best advice is to use what works for you and forget what doesn’t.
The road to better finances isn’t a quick or well-paved one, but with a little effort and attention, you’ll be on your way in no time.