Personal finance is, well, unique. Your upbringing, education, and experiences have all shaped how you view finances. These influences have shaped your money management, credit, and savings perspective.
Sometimes, the truth you’ve learned is missing some essential information. And more often than not, these gaps in your financial aptitude can leave you behind on your goals. Some of these gaps are driven by misinformation that’s based on fear. It’s time to cast your fear about finances aside and discover potentially life-changing information about money.
1. Building Credit Is Essential
When was the last time you looked up your credit score? If it’s taking you a moment to resurrect your current three-digit score, add checking it to your to-do list. Each action you take in your financial life can influence that number. Establishing a solid on-time payment history is the most significant factor, driving 35% of your score. Your credit utilization — how much of your available credit you use at any time — makes up another 30%.
Review your payment habits and credit history to see where to improve. Consider a credit builder card to round out your credit mix if your score is low. Showing that you’re responsible with different credit types can reassure lenders. Credit cards are a great way to establish an on-time payment history, demonstrate responsible credit use, and build credit history length.
2. Credit Cards Aren’t to be Feared
Chances are, you’ve gotten mixed messages about credit. If your family struggled with credit card debt, it’s understandable why plastic would be blocked. However, credit cards are an integral part of what creates your financial record. Categorized as revolving credit, they provide users with access to a line of credit for purchases large and small. Each swipe makes a debit that you must repay before the due date or be charged interest.
Savvy users tap into revolving credit to manage expenses, streamline budgets, and reduce theft risk. Thieves have direct access to your cash if your debit card number is compromised. They’d have access to revolving credit with a credit card, not your own hard-earned money. While a stolen card number isn’t ideal, it’s easily solved by calling your credit card company. Card issuers take fraud protection seriously and go above and beyond to the right of your account.
3. You Can Negotiate Almost Every Bill and Major Purchase
The listed price isn’t always the final price. While the U.S. isn’t known for its haggling skills, don’t hesitate to ask for a retailer’s best price. Ongoing bills like TV and internet can be customized for your needs and budget, saving you monthly money. If you understand how to ask and negotiate, one-time buys like cars, furniture, and jewelry can cost even thousands less.
Approach each negotiation with the idea that everyone will win. Eliminating the concept of winners and losers will allow you and the other party to collaborate on a solution. Strive to connect with the human on the other side, be clear about your concerns, and make your ask. With extra cash in your account, you can save for emergencies or enjoy something fun without busting your budget. While walking away with a steal isn’t always a guarantee, you’ll often save money.
4. There’s a Budgeting Style for Everyone
You’re busy enough, and creating a budget is just one more thing to do. But skipping managing your money is a recipe for financial ruin. You may be forced to play catch-up if you aren’t controlling your money. When you commit to budgeting instead of winging it, you actively ensure your financial security. If spreadsheets make you nauseous, other budget options are easy to stick with.
Consider bucketing spending categories by using a 50/30/20 budget. Percentages of your take-home income are divided between essentials (50%), fun (30%), and financial goals (20%). If you prefer more detail, assign a purpose to each dollar using a zero-sum budget. This method directs each dollar toward a bill, spending category, or goal down to the penny. Use an app-based platform to aggregate your accounts and monitor adherence to your chosen budgeting method.
5. You Don’t Have to Be Born Rich to Retire Wealthy
Pursuing prosperity while living everyday life can often feel like a struggle. It’s easy to yearn for a life on a silver platter, but that’s not true for most people. But there’s a secret that may change your life: compound interest. Compound interest is interest on interest, which can decrease your debt but is an advantage when you save.
The earlier you start saving, ideally in an investment account that aligns with your goals, you can earn more. Even if you start small, you can use compounding to make your meager start work harder.
If you invest $100 monthly for 40 years, assuming a 12% return, your balance could be $1.17 million. Wait and save $1,000 monthly for ten years at a 12% return; you’d only have $230,000. Saving small earlier can have you retiring in style instead of struggling with basic expenses.
Correcting Personal Finance Mistakes Over Time
Financial mistakes are part of life; no person can navigate every situation. Mistakes are part of learning, and financial flubs are no different. What’s important is getting clear on your weak spots and deciding how to address them. Changing your behavior is no small feat, so prioritize your adjustments to just three at a time.
Trimming down your financial to-do list can make it more manageable to achieve. Celebrate your progress as you see improvements in key areas like managing your budget, increasing your credit score, and saving. You’ve earned the accolades — and the account balance to match.
