Despite how important money is in life, personal finance know-how — or “financial literacy” — is not typically taught in schools, or necessarily by parents. Unfortunately, a lack of financial knowledge — and, as a result, planning — has led to many young adults racking up credit card debt, living paycheck to paycheck, and not saving enough for retirement.
The good news is that many money issues can be solved just by getting back to personal finance basics — the basics you likely never learned in high school, like how to set up a budget or the best way to knock down debt.
Gaining financial literacy can help more than just your wallet. A 2021 study by the Financial Industry Regulatory Authority (FINRA) found that people who were able to answer three questions that measured basic financial literacy correctly were significantly less likely to feel financially stressed or anxious.
Here are 10 personal finance basics that can help you become more organized with your money, feel less financially stressed, and achieve your goals.
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Personal Finance Definition
Personal finance is a term that involves managing your money and planning for your future. It encompasses spending, saving, investing, insurance, mortgages, banking, taxes and retirement planning.
Personal finance is also about reaching personal financial goals, whether that’s having enough for short-term wants like going on a vacation or buying a car, or for the longer term, like saving enough for your child’s college education and retirement.
Top 10 Basics of Personal Finance
1. Budgeting Is You Friend
Budgeting and learning how to balance your bank account can be key to making sure what’s going out of your account each month isn’t exceeding what’s coming in. Winging it — and simply hoping it all works out at the end of the month — can lead to bank fees and credit card debt, and keep you from achieving your savings goals.
You can get a quick handle on your finances by going through your statements for the past several months and making a list of your average monthly income (after taxes), as well as your average monthly spending.
It can be helpful to break spending down into categories that include basic needs (e.g., rent, utilities, groceries) and discretionary spending (e.g., shopping, travel, Netflix). To get a real handle on where your money is going every day, you may want to track your spending for a month or so, either with a diary or an app on your phone.
Once you know everything that typically comes in and goes each month, you can see if …….