There are many appropriate skills you can learn to help with your financial health and security. In addition, money plays a crucial part in driving our day to day lives, and its critical that we can control our spending by learning basic money skills. In this post, we will show you 7 money skills everyone should master enabling you to create a solid financial plan.
7 money skills everyone should know and master:
Below are 7 topics we will be looking at in more depth further on in the post.
- How to budget
- How to balance your checking account
- Managing debt
- Building credit
- How to use credit
- Making more money
- How to invest
How to budget
Learning the budgeting basics can really help you manage your finances. You may think budgeting requires spreadsheets and difficult calculations. Furthermore, the good news is you don’t have to be a mathematical genius to budget your money. The main thing you need to think about when budgeting is how much to spend and what to spend it on. When your buying items think to yourself do I really need this? can I get it cheaper elsewhere?. Firstly think about how much money you have coming in and the important items you need to purchase such as groceries, kids clothing, etc. Without budgeting, you can end up letting your finances get away from you. By ending up in further debt as you don’t know what your money has been spent on.
When you decide to start budgeting its as easy as keeping track of your transactions. Use receipts and bank statements to see what your spending your money on and where your money is being wasted. This skill is one of the easiest and most important skills you can use however you’ll need to follow the next 6 steps in order to really make a difference in your finances.
How to balance your checking account
Balancing and budgeting are two very different methods of dealing with your finances and are normally mistaken to be the same. Budgeting is about allocating funds towards certain items or bills. Whereas balancing is making sure your account stays in a positive figure at the end of each month. Even though there is a difference between balancing and budgeting they both need to work together. Both balancing and budgeting start with knowing what money is coming and what is going out. Tracking your spending and figuring out where money can be saved is each month is a lot easier when you balance your checking account.
Read: 16 Smart Ways To Save Money On Groceries
Most banks will send you monthly statements in which they will be itemized. By this point, you may already be in a negative figure and it will be too late. It’s important to monitor your account regularly. Signing up to online banking you’ll be able to monitor your spending from a mobile app.
The main way in which balancing differs from budgeting is that with balancing your avoiding financial difficulties. Budgeting may invoice creating a plan to pay off excising debt whereas balancing is to avoid getting into further debt or debt itself. The best way to deal with your finances is to combine the balance and budget aspects together to create a ‘balanced budget’. A balanced budget is where you distribute your income and expenses to create a zero or positive balance each month. If you end the month in a positive you can invest this money. You can even distribute it into your next budget plan.
Managing debt
Managing debt can really throw a spanner into your budget and plans on saving and making money. Balancing your budget is an excellent way in which you can work towards a positive balance if you are in deb. When dealing with your debt there are two main aspects you need to be aware of these are:
- The principle
- The interest
Interest is always the added extra that gets us all each month. Interest is the investor’s way of making money from their loan. When you take out a loan whether it’s with a bank or a loan company they are both investing in you as a person. Credit history is very important as this their way of checking your financial status. You may be told to stay away from payday lenders and bank loans as they lend to people that can’t pay them back is a myth. In addition, banks and payday lenders monitor the likely hood of return on their investment and the time period in which this will be achieved.
Many of us tend to pay back the minimum payment required each month. While this will keep your relationship with your bank or other investors sweet it won’t do much to eliminate your loan. In order to get your debt down to zero, you’ll need to start by chipping away at the Principle loan value accounting for the interest added. Each month the interest will be added to your loan amount. This is why it’s so important to low-interest credit cards or loans.
If you’ve already got yourself into a high-interest rate loan you’ll realize it’s not easy to get away from. The quicker you get to grips with this high-interest debt the better and should be tackled first. Creating a budget is one of the key ways in which you can start. This can really help you check how much you can afford to pay off each month. Interest rates can find a way of really getting you snowed under in debt. If you master this your money-making skills you’ll really be on the way to getting out of that debt.
Building Credit
We may all associate good credit with getting ourselves in debt however not all debt is bad debt. When investing debt can be very useful or an example when buying a house or a car can be valuable. It can be a great value to even invest in a student loan or low-interest credit cards as long as you on top of these finances. As mentioned above banks will invest in clients that have good credit reports. This can also be beneficial to you as your likely to get a larger loan amount and a low rate of interest. These kinds of debt can help you financially in the long run as long as you keep on top of them and manage them wisely.
When talking about good credit its a simple as having a purchase/ payment history and knowing your debt to income ratio. Knowing that you can pay off your debt with your income each month can really help manage the debt. If you’re new to applying for a loan you’ll need to build your credit history as you’ll be a new customer. A great way to start is by using a credit card and pay off the full balance each month. This will help you avoid accumulating interest each month. Another way in which you can build your credit rating is by adding your saving if you have some to a secure credit card. This will enable you to use the money until your credit rating has reached the desired level needed.
When your dealing with getting your self out of debt try not to focus on your credit rating. Many of us struggle with debt as we try to focus on rebuilding our credit. Good credit is to enable you to get a loan. Your credit rating will naturally rise once you start to get your self out of debt. So when your trying to get yourself out of debt try not to worry too much on your credit score.
How to use credit
When applying for a loan a good credit score determines how much financial support you can achieve or if you can even get approved for the loan in the first place. When you are trying to improve your credit score it’s important you know how to use the credit in order to make your credit score more powerful. Knowing the power of good credit scores to help you achieve financial gain is also important. You don’t want to get into more debt. Managing your credit and managing your debt are both different. You can factor your credit into your balanced budget and pay off as little as you like.
It’s important to figure out how much you need to set aside and how quickly you want to pay it off. When you already have debt added to your credit line try not to add more debt. This can become a burden and be hard to manage in the long run. Once you get to know how to use your credit you can use it to your advantage and invest in your future. Using low-interest credit cards can help you pay more towards to the capital of your card balance rather than the interest accrued.
Making more money
The most important thing about your financial health is growing your monthly earnings. This can really help you master your money-making skills. You can increase what you earn each month by achieving the following goal. If you have a large debt that crippling away at your finances you should look at your earnings as well as managing your expenses. There are two ways in which you can use your earnings to help with debt. You can slow down the spending or increase the earnings. Both these solutions are a great way of managing debt. Increasing your earnings is a great way to increasing your finances weather your in debt or not. It’s great to have some savings and always think ahead.
One great way to increase your income or earning is by starting your own business. This will help you maintain a high credit score that you have worked hard to achieve. Starting a business is a great way of investing your income and making more in return. You can start a small business with your savings depending on the nature of your business. If you have a business plan you can get a loan from the bank and make more of an income then what the bank has lent you. This will enable you to pay back the loan and have a nice income to work with. This is definitely one of the best money making skills to master.
Read: Ways To Get Extra Money To Pay Off Debt
How to invest
Many of us are not very familiar with investing as we tend to be on the other end of the spectrum. Investing in your future is an important aspect of financial security. There are many ways of investing these can be short term investments to long term investments where you can earn a number of financial gains. The bigger the investment or risk the more financial gains you’ll get. Firstly you can invest in a savings account allowing you to invest as little or as much as you want however you’ll only gain a fraction of your savings back as an earning. On the other hand, you can invest your money in a money market account however this does require a minimum of $10,000 balance. This type of investment varies risk and return depending on the amount you choose to invest.
Enjoyed our blog on 7 money skills everyone should master? read our blog on 10 Ways To Save Money On Your Cell Phone Bill.
