10 Personal Finance Basics you Should Know

Most of us were never really taught to manage our money. Personal finance tips are rarely covered in
school . If you’re lucky, your parents passed on a few lessons, but typically, that’s not enough to provide a solid knowledge base for taking charge of your finances as an adult.

As a result, many well-educated, gainfully employed adults are pretty clueless when it comes to their own pocketbooks. Nearly 70% of adults aged 35 or younger say they find investing confusing, and an estimated one-third of homeowners don’t know their mortgage interest rate.

A study that measured knowledge across eight areas of personal finance found that half of U.S. adults couldn’t answer half of the questions correctly.

You don’t need to become a financial expert—there are advisors for that—but, it’s important to have a grasp of foundational personal finance concepts.

Not understanding those basics can set you up to be taken advantage of, or can eventually lead to financial disaster. It can also delay you from taking the steps you need to build a solid financial future for you and your family.

The topic of personal finance may sound intimidating, but it doesn’t have to be complicated.

10 Personal Finance Basics you Should Know

Here are 10 basic things to know about personal finance.

1. Budgeting Is Your Friend

Budgeting often has a negative connotation. In reality, it’s a way to take control of where your money goes and help make sure you’re on a path to the goals that matter. You can get started by tracking your spending for at least 30 days.

You should always be spending less than you earn.

Use that as a guide to make a list of your monthly expenses, including basic needs (e.g., rent, utilities, groceries) and discretionary spending (e.g., shopping, travel, Netflix). Next, add up your monthly income: what you actually take home after taxes and deductions. You should always be spending less than you earn.

If you aren’t living within your means, or if you’d like to free up more cash for saving, the choice is usually pretty binary: either trim expenses or grow your income. Go through your budget, and look for ways to save: Can you move in with a roommate? Buy used clothing? Cook more instead of going out?

And consider your options for earning a better living: Can you ask for a raise? Look for a new job? Start a side hustle? Once you have a reasonable budget worked out, stick to it! Plenty of apps (like SoFi Relay) are available and can help you stay on track.

2. Building an Emergency Fund

You can’t predict when your car will break down or when you’ll have an unexpected medical crisis. If you don’t have money saved up for what life throws at you, you may risk racking up high interest credit card debt or defaulting on your bills.

To avoid this, you can save money every month to build up an emergency fund. Conventional wisdom typically suggests having three to six months of basic living expenses saved.

This fund should be accessible anytime so you can use them in a pinch, so you’re probably not going to want to invest this money or lock it up in a CD. Instead, you can keep it in a high interest checking or savings account so it has a chance to grow and can be withdrawn when you need it.

Read Also: Meaning, Nature and Significance Business Finance

3. Avoiding a Credit Card Balance

When you have a credit card at your disposal, it can be tempting to charge more than you can afford. But trying your best to avoid carrying a balance can save you some serious dough.

See if you can pay off your card in full each month, not just make the minimum payment. The reason is that credit cards have some of the highest interest rates out there, with the average currently at 17.56% .

That means a small charge carried over from month to month can quickly balloon into a much larger sum. The same is true for other high-interest debt, such as some private or payday loans. If you already have high-interest debt, don’t fret; There are ways to pay off that debt.

The avalanche method, for example, requires paying the minimums to all your creditors, and putting any extra money toward the debt with the highest interest rate first. Once that’s paid off, the borrower puts their extra cash toward the debt with the next highest rate, and so on.

Another option is to look at balance transfer credit card offers, which can allow you to move your balance to a new credit card with 0% interest for a period of time. As long as you pay the balance off completely before that period expires, you should avoid being hit with higher rates.

4. Paying Your Bills on Time

10 Personal Finance Basics you Should Know

              Personal Finance

This sounds like a no-brainer, but a quarter of American adults have trouble paying their bills when they’re due. Of course, there are many reasons people struggle, but, if you’re budgeting and have an emergency fund, you’re probably in a good place to make your payments on time.

If you tend to forget, you can set up calendar reminders or pay your bills automatically through your bank or service provider. Delaying payment can result in late fees or, after prolonged periods, your balance going into delinquency or sent to collections. Late payments can also hurt your credit score, which could affect whether you’re able to qualify for loans, credit cards, or renting an apartment.

5. Starting Saving for Retirement Early

When you’re young, retirement can feel far away. But starting to put away money as early as possible means you’ll have more years to save, spreading the savings across your life rather than racing to catch up. But the main reason is the power of compound interest.

Because you earn interest not only on your contributions but also on accumulated interest, your savings can grow over time. If you have an employer-sponsored plan, such as a 401(k), you may want to consider contributing, especially if your employer offers to match contributions.

If you’d prefer, you can open a traditional IRA, Roth IRA, or SEP IRA, depending on your situation.All of these options can allow you to invest your retirement savings.

6. Investing

Saving for retirement may not be enough for you to have what you want for retirement. Retirement accounts offer a range of investment options, including stocks, mutual funds, and bonds. You can look into a diversified portfolio that aligns with your risk tolerance and the number of years you have until retirement.

If you’re maxing out your retirement funds, you can invest in other ways: If you have children, a 529 plan can help you invest for their college educations while potentially qualifying for tax benefits. You can also invest through a brokerage account, robo-advisor, or an online financial services provider, such as SoFi Invest®.

7. Getting Insured

When it comes to insurance, sometimes it’s smart to prepare for the worst. That means looking into health insurance and car insurance, and making sure you’re covered. In fact, everyone who drives a car is required to purchase car insurance by law . You also may want to consider renters or homeowners insurance to protect your home and belongings.

People with dependents (so, parents) may also want to consider long-term disability insurance and term life insurance . Many people can purchase health and disability insurance through their employers. If you don’t have that option, it’s possible to go through an insurance agent, broker, or the insurance company directly.

Read Also: The Beginner’s Guide to Personal Finance & How To Manage Money

8. Taking Advantage of Credit Card Points

Opening and closing too many cards in succession can get your credit score dinged.

If you have a decent credit score, you can look into credit card reward offers that may give you travel miles or cash back on your purchases. Among the best travel rewards are those that are flexible, meaning they can be applied to many different airlines and hotels.

A few warnings: Most offers require you to spend a minimum amount in the first few months to get the bonus. Be warned that opening and closing too many cards in succession can get your credit score dinged .

9. Checking Your Credit Reports Annually

You can request a credit report every year for free from the three main credit reporting agencies—Equifax, Experian, and TransUnion—at If you see any errors or signs of identity theft, it’s wise to contact the credit reporting agency or the account provider, and file a formal dispute if needed.

Separately, you can check your credit score for free through a major credit bureau, in many cases, a credit card provider’s website. Credit score typically matters a lot when you apply for loans, but if it’s on the lower side, there are almost always steps you can take to improve it, which might include reducing your debt balances or paying bills on time consistently, or increasing credit lines.

10. Choosing Your Bank Wisely

There are lots of financial institutions out there, and it can be hard to choose. It’s important to shop around to make sure you’re finding a product that really suits your financial needs.


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