Are you getting sweaty just thinking about personal finances? I get it. It’s incredibly nerve-racking looking at your financial future. It can feel daunting, especially when you don’t completely understand the rules of the game. Finances have their own unique language, making it feel impossible to understand. That’s why financial literacy is so critical to lasting success.
Financial literacy is understanding and utilizing financial instruments and skills such as budgeting, investments, and general finance techniques. You do not need to understand everything about finances, but becoming financially literate allows you to make better decisions with your money. You work hard for it; make it work just as hard for you.
The great news is that finances are 80% behavior and 20% knowledge. So with just a little knowledge, you can truly change the trajectory of your financial future!
Understanding why you do the things you do and recognizing these patterns will go a long way to creating a better financial future for you and your family. Hopefully, articles like this get you one step closer to becoming financially literate.
Let’s take it one step at a time, get familiar with some basic financial concepts you need to know, and start applying today!
Managing your money
Let’s face it, your finances control 80% of what you are able to do and the remaining 20% is all about building your financial literacy. They affect the way you think, feel, the experiences you have; it all is affected by finances. Understanding how to effectively handle and manage your money should not only be a priority, but it is really a necessity to have any chance at financial freedom.
Managing your money is not something that can be checked off a checklist but rather a habit that needs to be formed and maintained in your day-to-day life.
Below are a few essential tips for managing your money better.
- Spend less than you make
- Create a great budget
- Learn the art of savings
- Be aware of financial traps
- Eliminate bad debt
Check out this article on financial freedom for more information on financial literacy specifically budgeting!
Money in vs Money Out
The golden rule for finances is to spend less than you make. This is truly the basics of financial literacy. That is much easier said than done, however. When starting with any type of money management, we need to identify what money is coming in via income, side hustles, passive income, etc… and what is coming out via expenses.
The easiest way to stay on top of this is with an excellent budget. There are several successful budgeting tactics out there, and ultimately the one you stay consistent with is the one I would recommend.
What budgets are for is to create more financial margin. Financial margin is available to you regardless of your income and expense levels, but it can’t be obtained without a proper budget.
Trying to find financial freedom without a budget is like putting all your money down on red at the casino; it could work, but as my granddad used to say, “They don’t build those big glamorous buildings because they lose money.”
Regardless of the system you choose (I prefer 50-30-20 or the Zero-out method ), here are a few things to consider to ensure a successful budget.
- Track your expenses and income
- Spend less than you make — all about the margin
- Understand your relationship to money
For more information on making a successful budget, check out our article here!
Bank Accounts — Savings vs. Checking
Banks provide us with several valuable services but arguably none more helpful than the humble bank account. There are several different bank accounts available to you, but we will focus on savings and checking accounts today.
Savings vs Checking Account
If you are still burying your money or putting some money in your mattress, I’m here to tell you there is a better way. Both savings and checking accounts offer safety, convenience, and accountability.
| Checking Account | Savings Account | |
| Purpose | Everyday Use/Bill Pay | Future Goals/Expenses |
| Average Interest Earned | .03% | .06% |
| ATM/Online Access | Yes | Yes |
| Card Access | Yes | No |
| *FDIC Insured | Yes | Yes |
| Fee Structures | Higher with more flexibility | Lower Fees but come with restrictions |
*FDIC (Federal Deposit Insurance Corporation) accounts are insured up to $250,000 even in the event of a bank failure, making your checking and savings account an extremely safe place to keep your money.
It is essential to have at least a checking, and a savings account set up. Plus, with added benefits of direct deposit, mobile banking, insights, and easier access to your money, it is a no-brainer to have these accounts set up! Having both a checking and a savings account makes you start categorizing your income and realize what is available for spending and what is available for emergencies.
How much money should I have in my savings?
As with anything in life, we start small and work our way up. An excellent way to think about how much we should have in a savings account is to break it into two categories; emergencies and margin.
For emergencies, we want to be able to cover the unexpected expense of a flat tire, broken appliance, or hospital visit. A good goal to have for emergencies is a $1,000 emergency fund.
When considering how much financial margin you should have in your savings account, a good rule of thumb is to have three months’ worth of expenses in your savings account. That can feel highly daunting to do, so start small.
Learning the art of savings can take time, but it will pay dividends! Develop a monthly savings goal and start chipping away at it.
Choosing A Bank:
There are many great banks with different fee structures and benefits, so make sure to shop around before you get signed up with one.
The key factors when selecting a bank are:
- Fees on checking/savings account
- FDIC insured
- Account minimums
- Locations (national vs local)
- Access to money (mobile app, online platform, etc…)
- Ease of deposit
- Interest rates
My wife and I have used Chase bank forever and love how simple it is to use, and their mobile app is excellent. They make sending and receiving money easy, and I love their customer support and bankers.
The other bank we enjoy is BBVA. They have many excellent accounts to choose from. There are no monthly service charges with their checking account, and you can open an account with as little as $25!
Debit Card Vs. Credit Card?
Most of us will have a combination of a debit card and credit card that we use on a regular basis. Before we go any further, a debit or credit card is not inherently good or bad; they are simply tools. Tools are only as good or bad as the purpose they are used for. Neither is better than the other (well, not necessarily true, but we can talk about that later).
Debit Card
A key to element to your financial literacy is the humble bank account. A debit card is an extension of your bank account. Instead of withdrawing and carrying cash for every purchase, you can instead just bring your debit card. Debit cards give you access to the money you have inside your account at any given time.
Banks typically have something you can opt-in for called overdraft protection which allows you to withdraw more than you have in your account, and they add a nice and heavy fee each time you withdraw money that you don’t have.
I would highly suggest declining this coverage! Yes, it is embarrassing to have your card declined, but who are we trying to impress? Your financial journey is yours to own, and by eliminating silly fees such as over drafting, you get that much closer to financial freedom. Anyone who can’t respect that isn’t worth your time.
Credit Cards —
There is a whole bunch to cover on this topic because there are so many misconceptions on credit. I will link this article where I take a deeper dive into credit. But let’s start with the 50,000-foot overview of credit.
When using a credit card or credit in general, you are essentially taking out a loan and agreeing to pay that amount back on a future date for a given amount of interest. The interest rate on standard credit cards is typically 16% or higher when you are late paying off your credit card. We do not want to do this!
The best way to use a credit card is to use it just like your debit card. Only purchase things that you have the money in your bank account to make. Consistently making purchases on your credit card and then immediately paying it off is the best habit to get into to utilize credit effectively. Credit is important and a great tool if used appropriately.
When you use credit, this builds your credit score. Your credit score is important because it affects your ability to borrow money and how much you pay in interest on that money. It is also used by lenders, insurance companies, or landlords to assess your ability to pay the required amount.
So for example, let’s say you are trying to rent an apartment. If you have a lower credit score (300 Low – 850 High) then your application can be denied or you may have to pay a higher security deposit on top of the higher interest you will have to pay for the money you do qualify for.
Not a fun situation to be in. That’s why we want to be mindful of our credit score and do everything we can to protect it.
Keep Learning
Remember that financial literacy takes time. There are no true overnight success stories, it takes the unseen work to appear to be an overnight success. Keep educating yourself, and you will be delighted with the results. s always, you got this!
