Not everyone wants or needs to be a financial expert, but everyone — no matter what knowledge level — should master some personal finance basics.
It might be challenging to know what to start with since the finance category can be pretty broad. However, there are multiple sections where you must master.
Of course, that is easier said than done. Why?
Well unfortunately, our education system doesn’t necessarily prepare us for real world situations, especially personal finance basics. A large reason for most finance and money issues is a plain lack of financial literacy.
However, learning many of these items included in this list will be on you. I’m sure you can also ask family or friends as well to help guide you too.
Again, you don’t need to be a personal finance nerd or become an expert in everything, but these are the basic checklist items every noob should master for a healthy financial future.
How Credit Cards and Interest Rates Work
I got my first credit card at 18, which was a smart call by my parents to encourage me to do so. This was key in establishing credit and teaching me responsibility with payments.
Luckily, I was scared at first to do any real damage, but many others lack proper information. It simply comes down to not understanding how to properly use a credit card and how the interest rates work.
It’s critical to learn this information before getting a credit card, as it can keep money in your pocket and help remain debt free.
Spend some time reading the fine print and understanding what you are looking at.
Looking for more? Find everything you need to know when it comes to using a credit card vs. debit card here.
How to Balance a Checkbook
If you are younger (Millennials or Gen Z), you probably don’t use checks or a checkbook very often. I used to write checks when I was a bit younger when managing my monthly budget, but not so much anymore.
However, it’s still an essential personal finance skill to know how to do. It can really help you learn how to manage your money, know how much is in your checking, and learn about overdraft fees.
While I rarely write checks anymore, there are a few occasions where I do and need to ensure my checkbook is properly balanced.
I recommend having a few checks handy if ever the circumstance comes up that you need one. Here’s more info about balancing a checkbook.
The Budgeting Basics
To me, budgeting tedious and annoying, but it’s such an essential skill to develop early and can save you future financial headaches.
I focused on budgeting first when I started my financial changes, but now I do not pay attention as much once I had my system in place.
Note: Not focusing on budgeting is my personal preference and works for me. If you need to budget throughout your financial journey, there is nothing wrong with doing so!
Yet, budgeting is a personal finance basic all should master at first. Spend some time on your bills, your living expenses, what you are spending money on, your savings, etc. Write it all down, put a plan together, and learn why this matters.
How to Establish and Fix Credit
This might be one of my top personal finance basics I hope everyone can master. No matter your feelings towards the credit scoring system, building good credit is so essential. It can truly affect your ability to rent an apartment, buy a house, get a car, etc.
Your bad credit scores can haunt you for awhile, but there is hope.
You can always fix your low credit scores. But everyone should understand how it works, how you can fix mistakes, how you can increase your score, how to maintain a good credit score, and how to monitor.
Investing and Stock Market Basics
Don’t be intimidated or scared to invest your money in the stock market. It’s an essential part of your finances, in building wealth, and securing your future retirement.
Start with the very basics of investing, how it works, what a 401k or IRA is, etc. Then move on to managing your investment portfolio and what the maintenance looks like on that.
You can learn on your own via books or websites, or you can reach out to someone you know who you trust and has been investing for years.
You don’t need to become the next famous investor like Warren Buffett, but you should be savvy enough to be investing and know why you need to stay invested.
If you want to analyze your 401k or IRA for free, get recommendations, and uncover hidden fees — sign-up for Blooom’s free portfolio analyzer.
Managing Your Debt
At some point, you may have debt. Whether that is from student loans, credit cards, etc. you have to learn how to manage it from day one.
The goal here is to understand how your debt works, what the interest rates are, and how to pay it off faster. As well as how to avoid future high-interest debt altogether.
Understand why paying the minimum every month can drag out payments and cost you money, as well as various debt payoff techniques.
Here are a few articles about debt management you can check out:
- How To Pay Off Debt This Year
- Debt Snowball or Debt Avalanche?
- Student Loan Debt Is Bondage – Here’s 7 Ways To Set Yourself Free
- 5 Simple Ways to Pay Off Your Mortgage Faster
Maximize Employee Benefits
Most companies (pending who you work for), will have some additional perks you might not realize exist. Or you might just be overlooking them since your employer will give you a ton of paperwork.
However, it’s important you read their documents in detail and reach out to HR about all the benefits you might be able to utilize.
There could be discounts on specific things, training, or reimbursements that could put some money back in your pocket.
Related: Want to make more money in your job? Learn how to increase your salary with these tips.
Spend Less Than You Earn
No brainer, right?
Yet most people will fall into this trap of finances without realizing it! If you don’t really respect this concept and pay attention to your spending habits, you can quickly rack up debt or have little money to save.
This concept is preached on every major financial publication, but as simple as it is, it’s very important to ingrain in your mind.
So you need to live below your means and avoid lifestyle creep in order to maintain financial security.
Managing Net Worth
When you think of your personal finances, you should also be monitoring your net worth too. Your net worth is the value of all assets, minus the total of all your current liabilities.
Previously, calculating on your own may took a little bit of work, but luckily we have technology than can easily manage this for you.
I use Personal Capital and many others do as well. It’s free to use and helps see the bigger picture of your financial affairs and ensures you’re on track for a good financial health.
Even if your net worth is currently negative because of debt, it’s okay! You should be monitoring it either way.
Importance of Building An Emergency Fund
Saving money is probably the most common item that everyone understands about personal finances. Yet, so many still don’t think about stacking their emergency funds.
Many experts will say various cash ranges, but the standard I’ve seen is 3-6 months of expenses.
Understanding the value of an emergency fund, why you need one, and the purpose it serves is the easiest of the personal finance basics. Learn more about emergency funds here.
Understanding Your Paycheck
If you work for yourself or you are getting a paycheck from your job, you need to understand the basics of it. Items like what taxes are taken out, your gross pay, net pay, social security, medicare, etc.
Since it’s your money that you worked for, you should understand what goes where and why.
Again, another simple but crucial area of personal finance basics you want to master. Here is a deeper breakdown of how to read your paychecks.
Learn How to Buy A Home
This is one that really needs to be taught in high school too, but so often when we are ready to buy a home it’s on us to learn.
Things like understanding mortgages, applying for one, signing fees, PMI, the process of putting an offer on a home, etc. There is a lot involved in purchasing a home.
Although not exactly complicated, there are plenty of items to know and do.
Note: While not explicitly a part of personal finance, buying a home and understanding mortgages will impact your finances and making mistakes can put you in tricky financial situations.
Start to do your research on buying a home, even if you aren’t exactly ready yet. Your potential future home-buying self will thank you.
Seems like a lot huh? It certainly is, but digested into pieces you’ll find this stuff pretty easy to understand overtime. Don’t rush into every category at once, but start on one and really focus on the basics.
Will you become a financial guru overnight? Probably not. But understanding these personal finances basics and having mastered these areas, will set you up to improve your financial wellness.
You also do not need to love or be excited about your finances, but these are items you should not ignore throughout your lifetime.
Suck it up, brew a nice cup of coffee (or whatever your drink of choice is) and spend some time every week.
It may be a struggle at first, but looking back you’ll be happy you took the time to master these basic financial items.What do you think? Are there areas that still confuse you? Are there other basics that should be added to this list? Let me know in the comments below.