What You Should Know About Money
Everyone’s financial journey is different. Here are some things you should know about money while planning your next step.
Money needs financial goals.
Whether you have short, intermediate or long term financial goals, saving money will revolve around each purchase or investment goal. Once you establish what financial goals are important to you (i.e. buying a house, paying off debt, saving money for a big move), prioritize your goals. Prioritizing your financial goals means gathering the detailed information on how much money you’ll need to achieve each one and determining the order in which you will achieve them.
Try creating your financial goals by following a SMART plan:
Specific, Measurable, Achievable, Realistic, Timely
Know more about your net worth.
If you’re not at the part of your financial journey that includes thinking about long-term finances, not to worry. Understanding what it means to have net worth or building net worth is a great place to start. Tracking your net worth is a quick math equation:
Net Worth = Assets – Liabilities
In simple terms, net worth is what you own (assets) versus what you owe (liabilities).
Assets can be anything you own which can be converted into cash, such as investments, savings/checking, retirement funds, real estate and personal property. Your net worth will fluctuate, and that’s okay. Ideally, your net worth will continue to grow as you age by paying down debt, building equity, and acquiring more assets.
Money is emotional.
While many think of finances as a series of budget sheets of expense and deposit transactions in your checking account, money is emotional. Emotional triggers can drive you to react in a financial manner. For example, if ice cream makes you feel happy, you might overspend your budget one month buying too much ice cream.
Advertisers tend to appeal to your emotions in order to persuade your buying habits. So, how do we keep our spending until control with emotional triggers? Lots of practice. To encourage smart saving, think about having part of your paycheck put into automated savings.
There are different ways to invest your money.
Investing your money is a way for it to grow over time. There are many options for investing, but one of the easiest ways to begin is by contributing to a 401(k). Your 401(k) contributions may be matched by your employer up to a certain amount, and over time you will have money saved for retirement.
Investing your money may also mean just saving it with a guaranteed rate of return. You can calculate how much money you could save over time with our financial calculator.
Other options for investing your money:
CDs (Certificate of Deposits)
Mutual funds or Stock
Know how much interest you’re paying.
Make your money work for you by knowing how much interest you’re paying on credit cards, student loan payments, car loans, and/or mortgage payments. Interest rates are a percent of a loan balance that is charged as interest to the borrower, so the lower the number, the better your money is working for you.
Part of determining an interest rate is by the lender checking your credit score. The higher that number is, the lower interest rate you typically. If you didn’t have a stellar credit score when you first took out a loan, but now you do, consider refinancing. Refinancing will have the lender look at your loan again and may finance you with a lower interest rate, lowering your monthly payments.
Money management is a must.
Knowing how to manage your money doesn’t mean you have to become a math whiz, but it does mean growing your financial skills. How you spend money will affect your purchasing power long term through your credit score and your debt-to-income ratio.
Using a budget tracking system can mean going beyond living paycheck to paycheck and saving money for emergencies or for long term savings goals.
Pro-tip: Just because you qualify for a new loan or credit card, doesn’t mean you should take it. Think about your monthly budget as it stands and see if it fits in your monthly financial obligations.
Don’t be afraid to learn more about money.
There’s an old saying, ‘You don’t know, what you don’t know,’ and that applies to learning about money. The best way to create a budget for a new loan, how to rebuild after experiencing a financial crisis, learning the Pay Yourself First Method are all great places to start.