The Basic Money Skills Everyone Needs to Master

Money is a huge source of stress for many people. In fact, money issues are the number one cause of stress in the United States. But that doesn't mean you have to suffer. Money management skills don't come naturally. They're not taught at school, college or anywhere else. And though I think basic money skills should be a part of everyone's education, you need to develop and learn them by yourself. But where to start? Here are the basic money skills that everyone needs to master.

Bank Accounts

A bank account is a must-have for anyone who wants to receive, store and grow their money safely. But with so many different types of accounts out there, it can be hard to know which one is right for you. Here's a rundown of the most common types of bank accounts, and what each one has to offer:

Savings accounts are a great way to grow your money over time, with interest rates helping your balance to increase slowly but steadily. If you're looking for somewhere to stash your cash and earn a bit of extra cash on the side, a savings account could be the perfect option.

Checking accounts are the most common type of bank account and are ideal for everyday transactions such as paying bills and shopping. Most checking accounts come with a debit card which can be used to withdraw cash or make payments anywhere that accepts card payments.

Credit cards are another popular type of bank account, and can be used in a similar way to debit cards. However, credit cards also allow you to borrow money up to a set limit, which can be useful in an emergency or if you need to make a big purchase. Just be sure to repay any borrowed money within the agreed timeframe, or you'll start accruing interest charges.

So, there's a quick overview of the most common types of bank accounts. Now it's time to choose the right account for your individual needs. Consider how you'll use the account day-to-day, how much money you'll need to keep in it, and whether you want to earn interest on your balance. With so many options out there, finding the perfect bank account is easier than ever before.

Credit and debit cards

When you're ready to start using plastic for spending, you have two main choices: debit cards and credit cards. Both have their pros and cons, so it's important to understand the difference before choosing which one is right for you.

Debit cards are linked directly to your bank account, so they can be a great way to stick to a budget. You can only spend what you have available in your account, which means you won't end up in debt. However, debit cards don't usually offer the same level of protection from fraud as credit cards, so you may want to consider using a credit card for online purchases.

Credit cards can be a great way to build up your credit history, which can be helpful if you're planning on taking out a loan in the future. They also offer more protection against fraud than debit cards. However, it's important to make sure you're able to pay off your balance in full each month, as carrying a balance can quickly become expensive due to interest charges.

There's no right or wrong answer when it comes to choosing between debit and credit cards. It's all about finding the option that best suits your needs and spending habits.

Tracking your spendings

Most people are surprised to find out how much money they spend on unnecessary things. It's important to have a clear idea of where your money is going so you can make informed decisions about your budget. Tracing your spendings and cash flow can help you identify unnecessary expenses and give you better control of your finances.

There are many ways to trace your spendings and cash flow. One simple method is to use a spreadsheet. You can add all of your income and expenditures for the month, then subtract your total expenses from your total income. This will give you a clear picture of where your money is going. You can also use a budgeting app or book to track your progress.

No matter what method you use, tracing your spendings and cash flow is an essential step in taking control of your finances. With this information, you can make informed decisions about how to allocate your resources and achieve your financial goals.

Create a budget

Creating a budget is one of the simplest and most effective ways to control your spending, saving, and investing. You can’t begin to improve your financial health if you don’t know where your money is going, so start tracking your expenses against your income, then set clear goals.

Start by evaluating your current financial situation. How much money do you bring in each month? What are your regular expenses? Make a list of both your fixed expenses (such as mortgage or rent payments) and your variable expenses (such as groceries, entertainment, and travel). Once you have a clear picture of where your money is going, you can start setting goals.

Do you want to save more money each month? Pay down debt? Build up an emergency fund? Whatever your goals may be, make sure they are specific, measurable, attainable, relevant, and time-bound (SMART). For example, “I will save $500 per month for the next year” is a SMART goal. Once you have set your goals, it’s time to start working on a budget that will help you achieve them.

There are many different ways to approach budgeting, but one simple method is the 50/30/20 rule. This rule suggests that you should allocate 50% of your income to essential expenses (such as food and shelter), 30% to non-essential/discretionary expenses (such as entertainment and travel), and 20% to savings and debt repayment. Of course, you may need to adjust these percentages based on your unique circumstances.

The most important thing is that you find a budgeting method that works for you and that you stick to it. Remember, creating a budget is only the first step – the real key to success is following through with it. If you can do that, you’ll be well on your way to improving your financial health.

Saving Money

One of the best ways to make your money work for you is to save it on a regular basis. This could be daily, weekly, monthly or even just a few times per year. The key is to be consistent with your savings routine and make it something that you can stick to. By doing this, you will ensure that you have money set aside for both emergency situations and long-term goals. In addition, regular saving will help to develop good financial habits that will serve you well throughout your life. So if you're looking for a smart way to use your money, start saving on a regular basis today.

Pay-off debt

Debt management is one of the most critical aspects of money management. Effective debt management involves decreasing your overall debt load and making steps to improve your credit score. While it may seem daunting, there are proven methods for reducing debt and taking control of your finances.

One option to pay off your debt is through monthly installments. Monthly payments will allow you to make paying off your debt affordable and easy to work into your budget. First, figure out a payment amount that is feasible and an amount you will be able to commit to. Once you start making payments, be consistent. In fact, when the opportunity arises make an extra payment a month or increase your monthly installment. This will get you out of the debt faster and could end up saving you money on interest.

Another method for reducing debt is through consolidation. Debt consolidation involves taking out a new loan to pay off multiple smaller loans. This can be beneficial because it often results in a lower interest rate and can simplify the process of making multiple payments each month. When consolidating debt, it is important to compare rates and terms from multiple lenders to ensure that you are getting the best deal possible.

By following these methods for effective debt management, you can take control of your finances and reduce your overall debt load. Doing so will free up more money each month which can be used for other financial goals such as savings or investing. In addition, by improving your credit score, you will likely qualify for better terms on future loans which can save you even more money in the long run.

Your credit score

A credit score is a number, usually between 300 and 900, that indicates the risk a lender takes when lending you money. The higher your score, the lower the risk to the lender and the more likely you are to be approved for a loan at a reasonable interest rate. Credit scores are calculated based on factors such as your bill payment history, credit utilization, and hard inquiries.

You can take charge of your credit score at any time by paying your bills on time, keeping debt balances low, and limiting the number of hard inquiries on your credit report. These are all ways to maintain a healthy score. Nurturing your credit score is something you can do all on your own to improve your financial health.

Building an Emergency Fund

A lot of young adults think they already have an emergency savings account – they call it “Mom and Dad.” But as difficult as it is to get kids to prioritize their needs over their wants when it comes to managing their money, it’s even harder to get them to prioritize the needs they might have in the future if something really bad happens. Unfortunately, as they say, “Mom and Dad won’t always be there to bail you out.” So make sure your children understand the importance of having money to fall back on and know how to build their own little emergency nest egg.

Unfortunately, all too often, young people find themselves in a bind because they don’t have any savings to cover unexpected costs associated with an emergency, like a car repair or a medical bill. And without an adequate safety net, these types of financial shocks can quickly send them into a tailspin.

That’s why it’s so important for everyone to think about the importance of saving for a rainy day. Understand that an emergency fund is there to help cover unexpected costs so you don’t have to rely on credit cards or loans. And learn how to start building your own fund by setting aside a small amount of money each month.

With a little bit of planning and preparation, you can weather any financial storm that comes your way. And you can rest assured knowing that you won’t be calling your parents every time you need a few bucks.

Investing Money

If you're thinking of dipping your toe into the world of investing, it's important to understand the basics before you part with your hard-earned cash. There are many different types of investments out there, each with its own risks and potential rewards. So, how do you decide what's right for you?

The first step is to think about your financial goals. What are you hoping to achieve by investing? Are you looking to make a quick profit, or are you aiming for long-term growth? Once you know what you're trying to achieve, you can start to research the different types of investments that might help you reach your goals.

For example, if you're looking for short-term gains, investing in stocks or shares might be a good option. However, there's always the risk that the value of your investment could go down as well as up. On the other hand, if you're more interested in long-term growth, putting your money into a pension or ISA could be a better choice. These types of investments tend to be less volatile, so there's less chance of seeing big swings in the value of your money.

Of course, no investment is completely risk-free. But by doing your homework and understanding the different options available, you can give yourself a better chance of finding an investment that suits your needs.

Planning for Retirement

No one likes to think about growing old and being unable to take care of themselves, but it's a fact of life that everyone has to face sooner or later. One of the best ways to ensure a comfortable retirement is to start planning for it as early as possible.

There are a number of things to consider when planning for retirement, such as how much money you'll need to support yourself, where you'll want to live, and what you'll want to do with your time. However, the most important factor is how much money you'll have saved up.

The earlier you start saving for retirement, the more time your money has to grow. Even if you can only put away a small amount each month, it will add up over time. There are a number of ways to save for retirement, such as opening a 401(k) or IRA account, or investing in stocks or mutual funds. Whatever method you choose, the important thing is to start now.

If you're not sure where to begin, there are plenty of resources available to help you plan for retirement. Financial advisers can offer guidance on how much you should be saving, and there are dozens of online calculators that can help you estimate how much money you'll need. Retirement planning may not be the most exciting thing to think about, but it's an important part of ensuring a comfortable future.

Bottom line

There you have it: The basic money skills you need to master. In fact, if you learn how to create budgets, set financial goals, and keep track of your spendings and get into saving and investing a good portion of your money, you're well on your way to financial success. Just remember, it doesn't happen overnight. Rome wasn't built in a day, and neither is a solid financial foundation. So start small, and keep at it. Before you know it, you'll be a money pro. And if you ever need help along the way, don't hesitate to seek out a financial adviser.

What are your experiences and what other basic money skills do you think people should master? Let us know in the comments below. And don't forget to share this article with your friends and family if you found it helpful.