To be financially literate is to know how to manage your money. This means learning how to pay your bills, how to borrow and save money responsibly, and how and why to invest and plan for retirement.
Take the initiative to self-educate and grow your financial knowledge, by beginning with the basics of money management and maturing into a smart spender. Putting time into your financial development improves saving and investing decisions. By leveraging resources—like age, talent, money and the ability to establish good habits—you can build a long-lasting nest egg.
What Is Financial Literacy?
Managing your money is a personal skill that benefits you throughout your life – and not one that everybody learns. With money coming in and going out, with due dates and finance charges and fees attached to invoices and bills and with the overall responsibility of making the right decisions about major purchases and investments consistently – it’s daunting.
You would think that because the stakes are so high that this would be a skill that gets taught in high school (or even before), but that’s not the case. Managing your own money requires a fundamental understanding of personal credit and a willingness to embrace personal responsibility. That is, you pay your bills in a timely manner and you don’t drown yourself in debt. You accept the fact that sometimes you have to sacrifice immediate demands and desires for long-term gain.
You budget. You save. You protect your savings. When you spend, you spend wisely. When you make big purchases, you do so for things that are worthwhile.
You understand the difference between good debt and bad debt. And you constantly pay attention to your overall portfolio — earnings, savings and investments. You also understand what you don’t know, and you ask for help when you need it.
To be financially literate means having the ability to not let money – or the lack of it – get in the way of your happiness as you work hard and build an American dream complete with a long and fulfilling retirement.
How to Manage Your Money
Handling your finances the right way should be a priority, and it should drive your daily spending and saving decisions. Personal finance experts advise taking the time to learn the basics, from how to manage a checking or debit account to how to pay your bills on time and build from there.
Managing your money demands constant attention to your spending and to your accounts and not living beyond your financial means.
Money in the Bank
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Developing financial acumen starts with opening a bank account. Once you have a paycheck, set up direct deposit. This keeps your money secure and saves you from paying interest to cash advance companies which charge a percentage of your check.
Having a bank account provides convenience, access to a choice of benefits and safety. Checks and debit cards offer proof of payment so you have a record of transactions showing where your money goes. The FDIC insures money in a savings account for up to $250,000.
There are a number of options for the type of primary account for saving your paychecks. Most people choose a checking, debit or savings account or combination of those. These enable you to set up automatic payments for monthly bills and offer the ease of not having to carry cash around. Each option comes with certain benefits and disadvantages. Evaluate the various overdraft, monthly, withdrawal and other maintenance fees accompanying account options.
Experts recommend you have a savings account which you can use for handling unexpected financial expenses and emergencies, such as a broken arm, flat tire or hike in school tuition.
Choosing to only open a checking or savings account can be a poor choice, as having the two types of accounts separate helps distinguish between money available for immediate spending and reserves, intended to be kept for the long-term. Keeping all your money in a checking account means your savings are easily accessible and available to spend. You will miss out on interest generated by a savings account.
With money in an account, you can start spending. This is where you need discretion. Learn to differentiate between necessities and luxuries. For example, you need to pay for your yearly dental cleaning, but you want to afford the salon appointment. Take advantage of mobile banking to get updates on how much you are spending and how much remains in your account.
The best way to leverage the cash you have in your bank account will be to start budgeting immediately.
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One of the first building blocks of a successful personal finance plan is the ability to budget. Although it’s easy to understand, it’s also difficult to do because it requires a hard look in the mirror and a willingness to see what really stares back at you.
Budgeting requires that you analyze and, likely, change your spending habits. Instead of your money controlling you, you control your money. Develop habits to save, avoid financial crisis and maintain peace of mind.
A successful budget plan clearly defines:
- How to follow a monthly spending plan
- Ways for lowering your monthly bills
- How to handle accrued debt
- Debt pay-off options like the snowball and avalanche methods
- How to distinguish between short-term, medium and long-term goals
- A breakdown of family needs