5 Essential Financial Skills for Every Adult

5 Essential Financial Skills for Every Adult

by | Feb 8, 2024

Looking to develop your financial skills? Young adults and even older adults all desire to be on top of their finances and not have to stress about money. But what do you do to continue having a great track record with your finances?

Essential Financial Skills

1. Budgeting

Create a Budget: A budget is something you use to help you understand what money you have and what you need to spend your money on. That can include things you want and things you need to pay for like bills, groceries, etc. You can use budgeting apps – some are even free such as Credit & Debt – to track your finances and see what you are working with. Spreadsheets are another good avenue.

Know Your Numbers: This is how much money you bring in monthly after taxes and deductions. You must also factor in your monthly bills such as mortgage or rent, utilities, and possibly medical bills or anything along those lines.

Prioritize Spending: Every month, set aside the funds you need to pay on bills and all your necessities. If there is money to spare after that, then you can go ahead and splurge a little bit if it makes financial sense.

Track Your Progress: Keeping monthly tabs on your bills can help you get into a routine where you know how much you have every month. This can also help you know how much you have left over.

2. Saving and Emergency Funds

Build an Emergency Fund: Saving a portion of your money every month comes in handy if an unexpected event takes place. Your emergency fund can be used to pay for things such as a vehicle breakdown, medical issues, or damages to the house. It’s better to be safe than sorry by having backup cash available.

Automate Savings: Another great feature that is available with most banks is setting up to have part of your paycheck sent to a savings account every time you get paid. You can set the amount, so you know how much gets put into that account.

Start Early: The sooner you start saving, the better. If you start off saving the minute you decide to, you have that extra security knowing you have that extra money. The earlier you start the quicker your money is compounding interest.

Set Savings Goal: There could be a dream location that you want to travel to or save for a downpayment on a house or vehicle. When you continue to be smart and responsible with your money, saving it becomes second nature.

3. Debt Management

Prioritize High-Interest Debt: After paying your mortgage or rent, groceries, and utilities, your focus with your money also needs to be on paying on any debt with high interest rates. Paying that down can help get your credit in better standing, allowing you to be able to qualify for more credit.

Consider Debt Consolidation: To lower your monthly expenses, investigate a debt consolidation loan where you can pay on all your loans with one monthly price. This way you aren’t spending all your money on multiple loans.

Avoid Unnecessary Debt: If you can help it, try not to use your credit card or take out any loans that you don’t need. Using your credit card a lot and taking out loans can lead to added monthly expenses. In the event you cannot pay on it, you’ve just added another debt that you have to take care of now.

Build Good Credit: Get in the habit of paying your bills on time. Paying your high-interest loans on time can help build your credit and lead to you having the ability to get lower interest rates on cars, get a mortgage, and credit cards.

4. Retirement Planning

Learn about Different Investment Options: To save up and secure yourself and your family’s future, invest in bonds. For example, fixed-income vehicle bonds mature within three to five years at about 5.75%, meaning hold-to-maturity bonds allows you longer time frames for higher rates. When investing in any kind of stock, you want to preserve the capital and watch the investment grow.

Mutual funds are designed to help retirees have a steady income coming in after retirement. An exchange-traded fund (EFT) is an assortment of different stocks, bonds, or other assets that you can buy, sell or trade during a stock exchange.

Real estate can be very lucrative as well. You can investigate the investment of flipping houses, make sure that you have leverage as well. It is best to educate yourself on the different types of investments and what best fits your needs.

Start Early: Understanding that the concept of compounding interest can be very lucrative when you want to start saving for retirement. When the interest you have on your savings account is reinvested, it helps you gain more interest and that leads to more growth.

Contribute to Retirement Accounts: If your place of employment offers 401K ), you can sign up for that. A portion of your paycheck is put in an account until you retire, and many times your company provides a match.

Individual retirement accounts (IRAs) are also a good option to start building your retirement savings.

Monitor Your Credit: Having MyScoreIQ credit report monitoring to monitor your credit is essential. This allows you to view your credit report and FICO® Scores along with receiving credit updates if there are significant changes to your credit. If you have any questions, credit specialists are available to assist you.

5. Continuous Learning

Stay Informed: It is always best to continue gathering knowledge so that you have a better understanding of honing your financial skills. You can do this by listening to podcasts about finances, reading articles on MyScoreIQ, attending financial workshops, and reading financial news so that you can stay ahead of the game.

Adapt Your Strategies: Things happen in life – some of those things are out of our control. When something unexpected happens, you need to readjust your money plans. Do not hesitate to do so. Call your financial institution to rearrange your existing plan. If you keep your goal, setbacks happen and there is no reason to be discouraged by them.

Seek Help When Needed: Feeling lost or overwhelmed can happen, even if you understand the concept for the most part. Turn to a financial coach for assistance through services like Credit & Debt, go to forums online to see if people might be having the same problems as you, and see how they are solving those problems

FAQs About Financial Skills

What’s the best way to create a budget?

Creating a budget is the smartest route to go; it just depends on how you go about it. You can go the 50/30/20 rule (50% to savings, 30% to wants, 20% to savings). Allocate every dollar you make to a different bill. Or, you can go with the envelope budgeting method by placing money in different envelopes based on rent, bills, groceries, home improvement, etc., so you know how much money you have and where it is going. Whatever works for you is the route to go.

How much should I save for an emergency fund?

Always start small unless you have a large amount of money or capital lying around. You want to have savings which is about three to six months’ worth just to be safe. Start small, setting aside some of your checks every month. You can put it in a savings account or put it somewhere for safekeeping until you need it.

I can’t afford to save. What should I do?

We know that there is a lot going on with the economy and money in general, and you may not be able to save money. The best advice you can get from this is to at least try to put away $10 or $20  a week and build that up. If your money situation changes, slowly start adding more money to increase your savings.

Where can I learn more about personal finance?

Look into a membership with MyScoreIQ. With their affordable monthly plans, you can view your credit report and FICO® Scores along with receive alerts when something significant changes on your credit report. You also have access credit specialists, available on the phone to educate you and answer your questions about your credit.

Bottom Line: Essential Financial Skills

It’s never too early to take control of your financial life. Learning the benefits of budgeting, the value of saving as well as investing, and continuing to gain more knowledge helps provide you with a fruitful future.

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