When it comes to financial know-how and savvy in this day and age, it seems like fewer and fewer of us are taught how it all works and what to be watching for. It might seem like something simple to learn, but there are a surprisingly number of complexities beneath the surface that many of us do not see until we dig deeper. That is why I am here today!
Anyone entering their adult lives needs to have a basic understanding of finances, how to manage them, and some of the basic terminology. While there are resources such as this one, https://mygreatlakes.org/educate/knowledge-center/credit.html, sometimes the technical jargon can be a little over the top. Hopefully, my article today can help shed some light on these topics without being confusing.
The Basics: Setting a Budget
Perhaps one of my biggest irritations with the current public schooling system here in the United States is the lack of education in terms of managing our finances. Nowhere does this become more obvious than when I begin to speak about budgeting with some of the people that I know who are around my age. We are like fish out of water when it comes to this stuff.
What is a budget, then? Well, I think most people know the answer to this question but indulge me for a moment. It involves determining how much money you will earn in a month and then how you are going to spend it.
Some things to note are that there are a few different styles of budgeting. There is not one single right or wrong way, but rather, it is up to each individual to decide what works for them. Let me outline a few of the types for you so you have a better understanding of what I mean.
What I like to use is called the envelope method. It is where you have a series of envelopes and label each one accordingly with what your expenses are for the month. You can add some for personal spending as well to ensure that you do not go over those amounts.
One of the most popular types is called fifty, thirty, twenty budgeting. In this model, you spend about fifty percent of your income on your needs. That could be rent or mortgage payments or other important bills.
Then, you give about thirty percent of your income to yourself. So, you have that to spend on whatever you want. The final twenty percent is for paying off debts and adding to savings. Some people opt to use some of this money to invest. You can see an example of that here, https://www.youtube.com/channel/UCSdQxZ3fu0WumvQubWCGxXQ, though any browsing on a search engine will probably net you results as well.
Where it Gets More Complicated: Credit
As much as I may be loathe to admit it, there is simply no avoiding the fact that credit rules a lot of our lives. Even most people who go to borrow money for their student loans run into trouble with their credit scores more often than not, especially if they are pursuing higher education right after they graduate from high school. I know I had a hard time with it.
You see, if you have a low credit score, you are much less likely to be approved for important loans without getting a co-signer. Unfortunately, having no credit history amounts to having a low score. Hence the catch twenty-two in this situation.
If we define credit, it is simple. All it refers to is your ability to borrow funds from banks or other financial institutions. Most lenders will run a credit check to see your credit score before they allow you to borrow from them.
So, that is why this matters. If you are still feeling a bit shaky on this topic, I do recommend that you look at some other pages. There are nice articles out there such as on this page that you can read.
The Bottom Line: Education on These Topics Breeds Success
There is no doubt in my mind that many of us would prefer to turn a blind eye to these topics. Life is easier and less messy if we do not have to worry about money. Unfortunately, it is a necessary part of growing up.
So, the best way to arm yourself for the future is to educate yourself on finances. Consider starting to invest as early as you can. I provided some information on that above, of course, but go out and explore for yourself.
You will find boundless opportunities now that you know that you should start looking. Armed with this new knowledge, my hope is that you can expand this and keep learning even more about this. Before you know it, you might be an expert!