It occurred to me, after being on the planet for almost 73 years, that what I and most of us call good money habits are unknown to millions among us who just haven’t any clue about that. After all, if they did, then the need for me or anyone to write about it would be a totally moot point, wouldn’t it?
If you don’t understand anything about personal finance, I’m not here to scold you or mock you. It’s not your fault because you probably either had no practical education in the field or worse, you may have had some really bad examples of how to manage money demonstrated to you as a child or young adult. In any case, you will eventually find out the truth about you and your money. The question is only when and how much damage it might inflict upon you. That’s why it’s never too early or too late to learn these “must-know” money tips you need to take your finances to the next level.
The Horrible Money Mantra I Once Heard
Back when I was relatively young, I worked for an entrepreneur who was a millionaire and had a very dim view of people and their money habits. Yes, it’s true he made his fortune selling goods to these “dummies” as he put it, he didn’t ever look back and try to figure out why people did what they did with their money that was so foolish.
The only thing I ever heard him say about it (and he repeated it over and over again) was this:
I’m so glad that there are so many stupid people around because it makes it so much easier for me to get rich!
I suppose he classified me in that group since I worked for him and he was the one accumulating the big money, not me. I didn’t last long there mainly because I just couldn’t tolerate his negative, selfish attitude.
The Must-Know Money Tips You Need
You don’t need to rely on other people’s ignorance to get ahead. Instead, rely on yourself and follow these money tips.
1. Have some real personal finance goals in life
You can and should start thinking about some basic goals that can help you make better money decisions, even when you are young and don’t have much money experience.
Try to keep your goals in mind when you make any money decisions…without a clear set of goals, it can be difficult to do the hard work of sticking to a budget and saving your money.
Defining a few specific goals, whether it’s buying a new car now or a home in five years or even being able to retire at 50, it can give you a picture of what personal financial success looks like to you, and can keep you motivated.
2. Learn the huge differences between wants and needs, and be able to distinguish one from the other
Do I need to say it again? Yes, I do and that’s because we don’t listen or remember any of this in the beginning. It’s only after you make a really big mistake that anyone actually learns the difference, and then it may take a long recovery period when a mistake occurs.
The merging of wants and needs can wreak havoc on your personal finances. Your needs generally include food, clothing, shelter, healthcare, and reliable basic transportation. Everything else is most likely a want. This doesn’t mean you don’t have wants, but it is important not to trade your financial security in pursuit of these things.
3. Use your money for you – first!
Perhaps you have heard this expressed as “pay yourself first”? This means taking some money out of each paycheck right off the bat and putting it towards your future goals. Setting aside money in a savings account, IRA, or 401(k) plan via automatic payroll deductions helps reduce the temptation to spend first and save later (if there’s anything left).
You literally have no idea, when you are 18, 21, or even at age 30, how much your future self is depending on you to do this seemingly unimportant action.
I tell everyone I know that whenever you get your very first real job, as soon as you are eligible, you need to start saving money for retirement. It seems so strange to your younger self to think that way, but if you do it makes the path to getting to it so much easier. Time is one of your best friends when it comes to retirement planning.
Putting money away as early as possible means you’ll have more years to save, spreading the savings across your life rather than racing to catch up as almost everyone eventually has to do. Perhaps the biggest reason to start as early as you can, however, is the power of compound interest.
That is something they actually teach in school. Did you learn that and how it applies to your personal finances and retirement?
4. Budgeting is another good friend
Budgeting can be key to making sure what’s going out of your account each month isn’t exceeding what’s coming in. Winging it and simply hoping it all works out at the end of the month can lead to debt which could keep you from achieving your savings goals and create a financial mess.
It can be helpful to break spending down into categories that include your basic needs (rent, utilities, and groceries) and your discretionary spending (shopping for new clothes, travel, even your Netflix bills). To get a real handle on where your money is going every day, you may want to track your spending for a month or so, either with a diary or an app on your phone.
Once you know everything that typically comes in and where it goes each month, you can see if you’re going backward, staying even, or ideally, getting ahead by putting money into savings and retirement each month.
If you aren’t living within your means, or you’d like to free up more cash for saving, a good first step is to go through your budget and look for ways to cut back on discretionary spending. Can you cook more instead of going out? Buy less clothing? Cut out cable? Quit the gym and work out at home? You have that power, but only if you know and understand what you have and where it goes!
5. 9-1-1, What’s your emergency?
You can’t predict when your car will break down or when you’ll have to make an emergency trip to the dentist. If you don’t have money saved up for what life throws at you, you risk racking up high interest credit card debt or defaulting on your bills. It can be even worse if and when something like a pandemic or other natural disaster strikes.
To avoid going into debt, start putting some money aside every month to build an emergency fund. A common rule of thumb is to keep three to six months of basic living expenses set aside in a separate savings account that you only touch when an emergency actually happens.
Choose an account where the money can earn interest, but you can easily access it if you need it. Good options include: a high-yield savings account, online savings account, or any no-fee bank account.
Just remember, if you need to use some or all of your emergency fund, start rebuilding it as soon as you are able.
None of these money tips are new or revolutionary. The amazing thing about them is how often they are ignored and become a problem for folks, regular people just like you and me.
Being good with money requires a set of basic skills that many of us were never actually taught in school. If you never learned them from your parents and didn’t learn them from a mentor, you may be on the cusp of a financial disaster waiting to happen.
Fortunately, it’s never too late to educate yourself about personal money management. Learning personal finance basics, including these money tips, will help you to choose a bank, set up a budget, save for retirement, monitor your credit, avoid (and deal with) high-interest debt, and invest your money. That’s how you can sleep peacefully at night and reach your personal finance goals to build wealth.
Have you planned for your personal finance success? Are you ahead of the curve on reaching for your goals like retirement? If not, today is the best time to start doing just that!