April is Financial Literacy Month, and that means it’s a great time to get back to financial basics. You might be surprised, as you look at your financial habits, to find out how many are bad. Sometimes we get too complacent in our finances, and let things slide a little bit. Here are some things to keep in mind as you review your money goals and practices this month:
Most Important Financial Rule: Earn More than You Spend
No discussion on financial literacy can be complete without a reminder that it is important to earn more than you spend. If your spending outstrips your income, it is time to make changes. You have to cut your spending, increase your income, or do both. As basic and obvious as this rule sounds, it’s amazing how many people still have difficulty following it. Check the cash moving through your personal economy, and see whether you could improve on this.
Know the Difference Between Needs and Wants
One of the first things we taught our son about money is the difference between needs and wants. In order to find financial success, and be considered financially literate, you really should understand the difference between needs and wants. Needs are requirements for survival — food, shelter, clothing, and sometimes transportation if you need it to get to work. Wants, on the other hand, are things that we can survive without. Unfortunately, we too often become so reliant on wants that we think of them as needs. Look at your spending, and see whether you are falling into this trap.
You Want to Earn Interest, Not Pay It
Interest isn’t evil. In fact, interest can be your friend. However, you have to know how money works, and understand that interest is only your friend if you are earning it, rather than paying it. You can earn interest on high yield online savings accounts, investments and even P2P lending. Most people, though, are more familiar with the interest they pay on debt. Instead of paying interest to someone else, try to pay down your debt and then put your money to work for you, making interest your partner in reaching your financial goals.
You Should Be Prepared for the Future
Another basic tenet of good finances is preparing for the future. This includes setting money aside in an emergency fund, as well as planning for retirement. Costs are only going to rise over time, and you never know when disaster will strike. An emergency fund and retirement accounts can help you weather future storms and cover future costs. You can even stock up on emergency supplies, get your financial documents in order, and prepare food storage to help you financially prepare for a setback.
Your Credit History Matters
Even though debt is not your friend, it can be helpful. As distasteful as it may be to play the credit game, you do need to participate. Your credit report not only affects what interest rate (and how much you ultimately pay) on loans, but it can also impact your insurance premiums and your ability to get a job. Learn about good credit habits, and how you can build your credit history without paying a great deal in interest.
What other basics of financial literacy should you get back to this month?
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Although common sense, it is sound advice.
I would add shopping around for best interest rates and low fee savings accounts. Consider Term Deposits as cash rates rise – using the terms that suit your personal circumstances.
The second point is placing emphasis on watching your credit rating as stated by Miranda. Just inquiring about a possible loan (giving your name and details) will automatic be registered as a hit on you credit. It does not discriminate between an inquiry and an actual loan. Few people are aware of this. The more pings on your credit history the more chance you have of getting a knock-back when you do eventually apply for a loan. A big deal when you have the cash deposit for your home and can’t get a mortgage or that car you need to get yourself to work.
My advice is use websites to check loan rates and make inquiries. Telephone for general inquiries and do not give your full name or your address or other details.
These are golden rules and if one follows them then there stands no chance of getting into financial troubles any day.