If I could go back to when I was 17, starting my first part-time job and earning my own money, I wish someone had guided me on the basics of finance that everyone should know. If you’re reading my blog, consider us friends—it’s my pleasure to share this knowledge with you so you can start your financial journey on the right path. This could also be a great conversation starter with your teenager to help them learn the importance of financial management early on.
Here are 10 essential financial basics everyone should know Let’s dive in!
#1 Budgeting Basics The most essential step before anything else is budgeting. Start by tracking your income and expenses to create a realistic budget that aligns with your financial goals. Mastering this will set the foundation for achieving every other financial milestone.
#2 Emergency Fund When you start earning money, the first thing you should prioritize before splurging on expensive rewards or temporary happiness is building an emergency fund. Aim to save at least six months’ worth of living expenses to prepare for unexpected situations. You never know when another economic crisis, natural disaster, or pandemic might strike. Many people have faced job losses, housing instability, and unpaid bills because they weren’t financially prepared. Secure your foundation first.”
#3 Saving and Investing Start investing early and diversify your portfolio to build wealth over time. There are many investment options available, and taking a risk assessment is the first step to understanding how much risk you can handle. Then, explore the types of investments that suit you best. Never forget that you must thoroughly understand any investment before committing your money. The goal is to make your money work for you, so when you grow older, you won’t have to work for money.
#4 Credit Scores Understanding how credit scores work and their impact on loans, interest rates, and financial opportunities is crucial. A good credit score opens up more opportunities and results in lower interest rates. In accounting terms, interest is a cost. For example, if you buy a car or a house, a good credit score means you’ll receive a lower interest rate (lower cost), allowing you to pay off the principal of the loan faster and save money over time.
#5 Debt Management You need to understand the difference between good debt and bad debt. For example, good debt includes things like a mortgage, which can appreciate over time, while bad debt involves high-interest credit cards, which can quickly accumulate and become harder to pay off. Learn strategies to manage and pay off debt effectively. If you use a credit card, always try to pay the full amount each period—never just the minimum. If you can’t pay off the full balance, consider not using the credit card and opting for a debit card instead.
#6 Compound Interest Compounding is the process where your money earns interest or returns, and then those earnings generate their own returns over time. This creates a snowball effect, allowing your savings or investments to grow at an accelerating rate.
#7 Retirement Planning This is a great opportunity to take advantage of if your company offers a high contribution percentage to match retirement accounts like a 401(k), 403(b), or IRA. Contribute the maximum amount early to benefit from long-term growth and compound interest. Don’t forget to consult with your HR department or financial adviser to ensure you’re making the most of these benefits.
#8 Taxes Plan your finances ahead of tax season to avoid owing money to the IRS and maximize your refunds. Learn the basics of tax filing, deductions, and credits. Understanding these elements can help you keep more of your hard-earned money and avoid unnecessary costs.
#9 Insurance Consider your risk and protect yourself with essential insurance types: health, life, auto, and property. Life insurance not only provides coverage for unexpected events but can also be a great investment. The sooner you secure insurance, the better it is for your financial future.
And last
#10 Financial Goal Setting Define short-term, medium-term, and long-term goals to guide your financial decisions and keep you on track. Reviewing and revising these goals annually helps ensure you’re adapting to changes and staying aligned with your financial priorities.
Which of these practices do you already follow, and which ones should you focus on to take control of your financial future? I hope this helps you grasp the basics and serves as a reminder for all of us.
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