It is never too late to start developing practical money skills. With a better understanding of how to spend and save your money, you can lead a more fulfilling life now and set yourself up for a comfortable retirement. Anybody can start working on their money skills. Even those living paycheck to paycheck can make mindful adjustments to set them on the path toward financial freedom.
There are a number of opportunities to save and invest your money. We put together this list of practical money skills that can benefit financial planning goals no matter your current situation. By following these basic steps, anyone can reframe their thinking on effective spending and saving to enjoy less stress and greater flexibility.
13 Must-Know Practical Money Skills for Life
Being honest about your strengths and weaknesses is important in many areas of life. Bad money habits often fly under the radar, and low self-awareness will allow them to continue. Assessing your habits, free of bias or qualification, can help you realize patterns of wasteful spending. From there, you can strategize goals and adjustments to reduce bad financial decisions.
Track your money habits over a month to find opportunities. Referencing online bank statements or keeping receipts can offer eye-opening looks into how small purchases add up over a short period. Take it a step further with a spending journal to clearly outline where your money goes. You can also solicit help from a friend or family member for advice on how to spend more intelligently.
Being aware of the extent of your financial knowledge allows you to unload certain tasks on hired help. If something is too difficult or time-consuming, consulting a financial professional can make the process more efficient. Do not take too much time away from your work and responsibilities to correct every financial shortfall.
A financial advisor knows the best and quickest routes to meet your needs. Leaning on their expertise can maximize your monetary growth, minimize mistakes and give you more time to focus on how you make your money.
Being Financially Literate
There are plenty of resources available online to start building your financial knowledge base.
Follow popular blogs to learn the ins and outs of relevant financial aspects. Talk with your financial advisor about your goals to see where you can direct your learning.
There is a lot of nuance and complexities to all that finances entails, but a focus on the following areas will help you make better money decisions:
- Setting a budget.
- Understanding borrowing and interest rates.
- Building credit.
- Getting out of debt.
- Focus on saving.
- Personal privacy and identity theft.
Setting Small and Realistic Goals
Focusing on the big picture is overwhelming, and it is difficult to gain forward momentum by thinking about massive change. Instead, take a more actionable approach by focusing on smaller, more immediate goals. Make minor adjustments to your habits and you will eventually see a big difference. A few bucks a day at Starbucks could be over $100 a month that you could be saving or investing.
Living Within Your Means
Budgeting is one of most critical components of financial health. You can only hope to gain if your earnings outweigh your expenses. Take stock of your monthly bills, compare them to your income and set a budget for your flexible spending to stay within means.
Being Actively Involved with Your Finances
Knowing how, why, what, when and where money is moving keeps you in control. Developing habits around adhering to a budget requires active discipline and real effort. Allotting a portion toward investments and savings should be a part of any plan as well.
Staying on top of your finances also saves you money. Paying bills on time saves in late fees and helps your credit, another essential tool in building wealth.
Earning by Doing Your Passion
In your day job or your side hustle, earning money should connect to what you are passionate about to make it more fulfilling. When you engage your interests in your financial endeavours, you enjoy more motivation and confidence.
Finding a way to monetize your interests does not have to be done at a career level. With social media and online marketplaces, marketing yourself and using your skills to earn extra cash is simple. The extra money can go towards investments or paying off debt, and it may even blossom into something larger. Since you are doing what you love, it will not even feel like work.
The most successful people are ones that work in areas that balance their natural abilities, affinities and values. Believing in what you do maintains your resilience through the unavoidable challenges you will face in forging your own success.
Learning When to Take Risks
Anything worthwhile will carry some risk, either large or small. Staying safe keeps you in place, and that will not work if you are trying to progress financially.
Risk-taking may not seem like a practical money skill, but smart investors know when to take them. Stepping out of your comfort zone does not mean making gut feeling money moves. Risks should be well-researched and weighed against all possible alternatives. Working with advisors and learning strategies on your own will allow you to make patient, informed financial decisions and choose the risks worth taking.
Earning More Money Where Possible
Unless you know that big promotion is right around the corner, you are probably not factoring more money into your financial plans. Cutting costs is fantastic but it is only half of the equation in generating wealth. Increasing income has limitless potential, but it is a far more daunting prospect than saving a few dollars a day.
We all know it is easy to want more money but finding practical ways to make a few extra bucks is difficult. As discussed, monetizing a pastime is a fantastic idea but in today’s “sharing” culture, there are plenty of ways to passively earn income. Becoming an Uber driver, putting your place on AirBnB when you are out of town or selling old knick knacks on Facebook Marketplace are just a few of the endless possibilities.
Mindset may seem like a trick to keep you on track, but studies have shown that optimism can have positive effects on your finances. Suffering from chronic stress over money makes you think hastily, avoid important risks and take unnecessary ones. Being optimistic makes you more likely to make smart money decisions and see greater benefits from your investments.
Letting pessimism invade your thoughts will keep you stagnant. Do not allow past failures to predict your future success. There is always a chance to improve, and staying optimistic will keep you moving toward that end.
Investing at a Young Age
Young people feel a lot of pressure to start saving money toward their retirement. Investing wisely, however, for some reason gets less priority. Putting a small amount of money each paycheck into an investment account is the surest way to grow wealth while you sleep.
Take advantage of company 401(k) programs or set up an IRA. If you want to invest in the stock market, apps like Robinhood make investing intuitive and convenient.
Being a problem solver is beneficial at home and in your career. On a small scale, learning how to solve problems around the house can save you the cost of hiring a professional. However, problem-solving is more than that — it is an innate characteristic that carries a success-generating mindset.
Being willing to understand a problem at its roots and work to solve it takes determination and open-mindedness. Successful marketers dive deep into customer problems to develop solutions. Rather than tending to external symptoms, the most popular products stamp out the root causes of customer issues. Having the same perspective toward solving problems can set you up for sustainable solutions in your financial efforts.
Keeping Your Investment Fees Low
Investment fees are unexpected for many people contributing to an IRA or 401(k). They are unavoidable costs that go towards sales commissions and operating expenses. A lot goes to management fees, so they do have their purpose. However, you want to make sure you are getting strong value for the fees you pay. The last thing you need is unnecessary costs taking away from your returns.
Even small percentage differences can have major effects on how much you accrue. For example, a 0.5 percent fee and a 1.5 percent fee may seem like an insignificant difference. However, taken over 30 years of growth, it could equal several hundreds of thousands of dollars lost. As a helpful benchmark, Warren Buffett advises to keep management fees at no more than 0.15 percent annually.
How can you improve your money skills?
- Set goals: Figure out short term goals that can help you accomplish your long term goals. Make a plan for saving and investing based on your vision of the future.
- Make a budget: Write down how much you spend on dining, entertainment and recreation as well as your monthly bills. Find areas that can be cut back to widen the gap between your expenses and your income.
- Be a savvy shopper: If you don’t want to give up on your everyday pleasures but still want to stick to your budget, look for coupons and wait for good deals. Be aware of what you spend on small purchases and be on the lookout for the best possible value.
- Remain optimistic and determined: Stay persistent even in the face of unexpected troubles. Making strides in your financial situation takes work and requires a bit of discomfort. You must hold yourself accountable and be consistent to make significant gains.
What is the best way to manage money?
Properly managing money is based in expediting financial growth and expense reduction. Wisely putting money towards retirement to grow at a young age and paying off debt is critical. Both the positive and negative effects of interest will be a major factor in determining your future.
The first step toward practical money management is developing a sound financial plan. Understand your current situation as well as your goals and priorities. It does not take much effort or knowledge to start. Once you get going, talking with a financial advisor can make the absolute best use of your time and money.