Only 50% of Americans under the age of 22 follow a budget. As people age, the percentage increases, but why is this number so low for young people?
Many young people fail to live on budgets because they never learned how to budget or why a budget is important. Living on a budget is one part of financial literacy that most high schoolers never learn.
People graduate from high school with a lot of knowledge they may never again use, but most leave school without knowing the essential parts of financial literacy. Here are seven things about financial literacy that you probably never learned.
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Living on a Budget Is Vital
The most basic piece of financial literacy that you can learn is how to live on a budget. Your financial wellness depends on a budget, which is why using one is vital.
Creating a budget isn’t difficult to do. All you need for it is a total of your monthly income and a list of your monthly expenses. With these two things, you can create a budget.
To create it:
- Start by listing your income at the top
- Next, list all your expenses for the month
- When finished, subtract the expenses from the income
The amount you have left is the money you can use for other things. You should decide how to spend the remaining money before you receive it. For example, you can devote some to savings, entertainment, clothing, and dining out.
Spend Less Than You Earn
Another great financial literacy tip is to spend less than you earn. While this might seem like common sense, many people never think about it. If you spend less than you earn, you can avoid falling into the debt trap.
You can spend less than you earn by living on a cash system. If you don’t have the cash to pay for the item, don’t buy it. If you want to purchase something costly, save up for it instead of charging it on your credit card.
Save a Portion of All Your Income
Of all the financial literacy tips you might learn, this one is probably the most important. You should aim to save a portion of all your income. Saving small amounts of money can result in building a large savings account.
You can decide how to much each month when you create your budget, and you should save the money as soon as you get paid. You might want to start by saving 5% of your paychecks.
As you begin doing this, you will feel comfortable saving 5% and can gradually move up to a larger percentage. It might take a little while to see your progress, but you will see it within a few months.
Learn the Proper Use of Credit Cards
Next, you must learn how to properly use credit cards. One of the biggest mistakes young people make is using credit cards the wrong way.
Credit cards are great, but they can also result in problems. One principle you can follow is to only use your credit cards for purchases that you can pay off when the bill comes in the mail.
If you always pay off your credit card balances, you will never fall into debt. Another principle is to choose a rewards credit card. A rewards card might pay you cash back for your purchases, helping you pay less for your purchases.
Understand Your Credit
Becoming financially literate also means understanding your credit. Most high school students leave school without any credit knowledge. Yet, credit is a vital part of life.
If you mismanage your credit when you’re young, it might take you years to repair it. It’s always better if you start managing it properly, as this can help you avoid needing to fix it.
Your credit score is a number that represents your creditworthiness. Companies base this number on several things, including your payment history, types of accounts, and the amount of money you owe.
The best way to build a good score is by paying all your bills on time. Secondly, you can build a positive score by avoiding debt.
Evaluate Your Net Worth Regularly
Another part of financial literacy involves fiscal wellness. Fiscal wellness refers to your financial position. Are you in a good financial position or a poor one?
One way you can monitor this is by evaluating your net worth. You might want to do this monthly, quarterly, or annually, and it’s not hard to do.
You can evaluate your net worth by adding up your total assets and debts. When you subtract your debts from your assets, how much money do you have? The answer tells you your net worth.
Many people see advice through a holistic financial wellness program to learn more about budgeting and finances. If you need help understanding personal finance, this is a great program to use.
Discover the Difference Between Good Debt and Bad Debt
One final tip is to discover the difference between good debt and bad debt. Many people believe that all debt is bad, but this is not true. Some debt is bad, but other debt is good.
Good debts can include home mortgages, student loans, and car loans. These debt types allow you to have nice things while slowly repaying your debts over time. When you have these loan types, paying them monthly helps you build your credit.
Bad debt is the type that doesn’t offer anything. The perfect example of bad debt is credit card debt. Personal loans also fall into this category.
Learning the Basics of Financial Literacy Can Protect Your Future
If you graduated from high school without knowing these features about financial literacy, you might not know where to begin with managing your money. As a result, you might make some detrimental mistakes.
Learning these principles can help you know the essential parts of basic money-management. Applying these principles can help you protect your future.
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