Financial literacy basics

Financial literacy is your ability to understand and manage your finances. Some skills include personal finance management, investing, and budgeting. Learning the basics of financial literacy can help you dodge debt, plan for retirement, and minimize stress.

Budgeting 

Budgeting gives you control over your money and doesn’t have to be complicated. Tracking and planning your spending enables saving, helps you prioritize expenses, and can even improve self-control. You can track your expenses in a spreadsheet to get an idea of where your money goes daily, weekly, or monthly. There are also some great budgeting apps out there. This guide to budgeting can help you get started.  

Establishing and maintaining credit 

Your credit score is what banks use to determine whether they should give you a loan. It’s helpful to start building your credit as soon as possible. Establishing your credit can be as easy as applying for a low-limit or secured credit card. And don’t forget to regularly keep tabs on your credit—many online tools check your credit for free. 

Borrowing and repaying 

Pay back loans or lines of credit as promptly as possible to keep your debt under control. Mind your loan amounts, credit balances, and monthly payment minimums, and be cautious when borrowing money. Try to build payments for student loans, mortgages, and other larger debts into your budget from the start. Before taking on new debt, use an online financial calculator to see how the payments might fit into your monthly spending. 

Investing 

Investing can be a great way to build wealth over time and earn income after you retire. Even if you have a job at a company that provides retirement benefits, investing on your own isn’t a bad idea. Seek education on different types of investing methods, like individual retirement accounts (IRAs) and 401(k)s.   

Taxes 

They’re an important part of our lives, but not everyone understands their taxes. Tax time can be much easier when you know how to fill out common tax forms and understand how to maximize deductions. 

This is especially true for small business owners. Filing taxes properly can help business owners maximize their income and keep their businesses in good standing. 

Insurance 

Insurance policies provide businesses and individuals with protection and peace of mind. Knowing the various types of insurance—like home, auto, health, and business—and what they cover helps you choose policies that work best for you. This can spare you financial stress if life throws you a curveball and you need to file a claim. 

Starting down the path of financial literacy changes your life in many ways. Sure, you’ll understand things like credit and insurance and begin budgeting better, but the goal is to improve more than just your finances. It’s to improve your quality of life.  

Building your financial literacy helps you:  

• Prepare for financial emergencies: Learning concepts like how to build and maintain an emergency fund will help you stay calm when unexpected expenses arise. And they will pop up. 
• Set and reach goals: Saving for a car, college, or your first apartment? Knowing how to budget and plan helps you routinely cross big goals off your list. 
• Make better financial decisions: Once you’re budgeting, saving, and thinking long term, it gets easier to say no to impulse buys—and yes to the future you want. 
• Reduce expenses: Being financially literate means spotting waste and cutting back where it makes sense. You’ll learn to spend smarter and eliminate costs that keep you from getting where you want to go in life. 
• Reduce financial stress:Finances can be a major stressor. Getting them on track helps put your mind at ease so you can focus on the finer things in life.  

Everyone makes money mistakes from time to time. But knowing what to watch for and having a plan can help you avoid the same traps down the road. Here are some of the most common money missteps:

• Overspending: It’s tempting to spend more when it feels like everyone’s doing it. But swiping your card without tracking your balance can leave you broke before payday. A simple budget—written down or in an app—can help you stay on track.
• Neglecting savings: If you’re waiting to “start saving when you make more,” you’re not alone. But the longer you wait, the harder it gets. Start small. Even $10 a week adds up over time. Treat your savings like a bill you can’t skip.
• Accumulating high-interest debt: Credit cards can feel like free money until the bill shows up—with interest. Carrying a balance month after month costs way more than you think. If you use credit, pay it off quickly. And if you’re already in debt, focus on paying off the card with the highest interest rate first.