Exploring Personal Finance Basics: Do You Know Everything You Should?

Understanding personal finance is an essential survival skill. No matter what your job or how much money you have saved, understanding how to manage your money and make it work for you is the only way to achieve financial independence. Just as you can learn any other skill, you can learn how to manage your personal finances. However, it goes well beyond knowing how to balance a checkbook.

Many skills are part of personal finance, including:

• Creating a monthly budget
• Managing your debt
• Establishing a retirement strategy
• Starting an emergency fund

Unfortunately, many people are intimidated by the thought of having to manage their money. With a basic education in personal finance and the right tools, you can take control of your money and develop financial strategies for a secure future.

Take charge of money worries.

Since they lack a basic understanding of personal finance, many Americans worry about money. According to Gallup research, 25% of Americans continually worry about money—specifically that they won’t be able to pay their expenses. A 2018 study revealed Americans are generally more stressed about money than they are about work or personal relationships. 

Chrometophobia is a real condition characterized by an irrational fear of money. People with chrometophobia suffer from extreme anxiety, panic attacks, and other physiological and emotional symptoms when they are around money or expensive objects.

People who are afraid of money tend to ignore their personal finances. Have you ever been afraid to open a credit card statement or a bill that arrives in the mail? Living in denial and ignoring your debt can have disastrous consequences.

One of the best ways to overcome financial anxiety is education. Gaining an understanding of basic money management will go a long way toward alleviating money worries and ensuring successful financial planning for the future.

Learn the basics of personal finance.

Mastering a handful of money management skills will give you control over your personal finances. Here are some of the basics that everyone should learn:

Creating a Household Budget

Personal finance starts with creating a household budget. The first step in any financial strategy should be to determine how much money you have and where it goes. Creating a household budget allows you to add up all your sources of income and match them against your monthly expenses. Basic economics says that your income needs to exceed your expenses, and ideally, you want to have enough surplus income that you can start putting money aside.

Cutting Expenses 

As part of household budgeting, you should inventory needs versus wants. Needs are those things that you must pay for, such as rent and food. Wants are the extras that you don’t need to survive, such as dining out or unnecessary travel. There are some gray areas, such as the cost of maintaining a car or having internet access, so it’s a good strategy to list your needs versus wants to see where you can economize. Some money experts recommend adopting the 50/20/30 rule where 50% of your income covers needs, 20% of your income covers savings and debt, and 30% pays for wants.

Developing a Saving Strategy

Every household budget needs to include a savings program. You can never plan your spending to the penny, and it’s easy to overspend, so having savings set aside to cover emergencies is essential. Everyone should have a rainy-day fund.

Understanding Credit and Your Credit Score

Knowing your credit score and how to manage your credit is an essential financial survival tool. Your credit score is a measure of your creditworthiness and is not only used to determine if you qualify for a loan or credit card, but it also is used by landlords, employers, and others when evaluating applications.

Managing Debt

Just about everyone accumulates debt. At some time, you will want to take advantage of student loans, home loans, credit cards, and other forms of debt. The challenge is knowing how to manage the debt you accumulate. Most lenders want to see a debt-to-income ratio of 43% or less, and keeping your debt under control helps you stay out of financial trouble.

Planning for Retirement

Americans don’t save enough for retirement. In fact, 35% of Americans have no retirement savings. Retirement planning is something we all tend to put off, but the sooner you start, the more money you will have when you get older. With a little research, you can determine the best ways to save for retirement and reduce your tax burden at the same time.

Planning for Emergencies

As part of your savings strategy, you should have an emergency fund. Putting money aside in case of a financial disaster, such as losing your job, a medical emergency, or some other unexpected expense can make the difference between successfully handling the unexpected and financial disaster. Also, consider what you may need in terms of insurance. Having the right homeowner’s policy, renter’s insurance, medical insurance, or auto insurance makes all the difference when you need it.

Count on iQ as your personal finance resource.

Your credit union can assist with all your personal finance needs. iQ Credit Union can help you learn more about managing your money with education programs and financial literacy programs for all ages. We have a lot of great information about personal finance and money management strategies on our blog as well. Just search for what you want.

At iQ Credit Union, we are committed to helping our members achieve their financial objectives, so we offer a range of financial services to help with savings, retirement, debt management, and even insurance. Feel free to contact us or visit any of our branches to learn more about how we can help you with your personal finance goals.

To get started, check out our blog, Credit 101: Establishing Good Credit, or download our Financial Survival Guide.