How to be Money Smart
Being money smart is about knowing yourself and your strengths and weaknesses with money and then setting things up accordingly.
It’s about developing habits that will carry you when your willpower falters.
Your financial situation, or overall financial well-being, is unique to you. We frequently associate our financial well-being with our income, credit score, or overall net worth. In reality, factors that tell a larger story about your relationship with money determine your financial well-being. This includes how well you manage your financial obligations, how confident you are in your financial future, and whether you have the freedom to make financial decisions that allow you to enjoy your life.
Check out the various ways on how to be money smart.
- Automate everything you can.
Automate your savings, your loan repayments, and your bills.
The fewer steps you have to take to get your money where it needs to go, the more likely you are to stick with it.
What’s so great about automated savings and repayments? Once it’s set up, there should be no additional steps for you to take each month. You can set it and forget it.
- Set specific and meaningful goals.
It can be difficult to stick to your savings plan, especially when you have to give up something else to make it happen.
When you remember the money is going towards something you really want, you’ll likely feel less of a twinge when you have to skip that extra drink.
It’s great to have a goal, whether it’s a vacation, a house, retirement, or even a less responsible-sounding purchase like a flashy new tattoo.
Putting all of your extra cash into a savings account isn’t always as wise as it sounds. Sure, there is little risk, but your purchasing power diminishes over time.
Consider investing if you want to be more proactive. It’s not as scary as it sounds, and you don’t have to be a Warren Buffett-like financial genius. Speak with a financial advisor or look into some of the apps (such as Spaceship Voyager) that make investing more accessible.
- Don’t blow that unexpected tax refund Inheritance or Birthday cash
As tempting as it may be to treat yourself, you may be better off putting that extra money into a savings or investment account, or paying down debt.
After all, you won’t miss the money if you weren’t expecting it. And your financial goals will appreciate it!
- Make high-interest debt a priority.
When you have multiple debts, it can be extremely frustrating to try to spread out your cash to cover all of the repayments.
Does this sound familiar? If this is the case, you should think about using the avalanche debt-relief method.
First, locate the debt with the highest interest rate. For all your other debts, you make the minimum repayments. You then devote everything else to paying off that high-interest debt.
After that, repeat the process for the debt with the next highest interest rate.
You’ll end up paying less interest overall, and you’ll feel great every time you pay something off completely.
Other ways on how to be money smart
- Maintain a spending log.
- Learn however you can
- Know what you owe before making a plan to pay it off.
- Determine the best debt-reduction strategy for you.
- Learn about the repayment options for federal and private student loans.
- Only apply for credit that you require.
- Make checking your credit reports an annual ritual.
- Create alerts to keep track of your checking account balance.
- If you are unable to make a bill payment, contact your creditors as soon as possible.
- Take our quiz to determine the state of your finances.
How to be money smart in your 20s
Basic economic and financial education in high schools should benefit at least a portion of the next generation, but young adults in the crucial post-high school years must also master core money lessons. Let’s look at eight of the most important rules for getting your finances in order. Never forget that the younger you are, the more time your savings and investments have to grow—so the sooner you start the better.
Here are a few ways:
- Exercise self-control by paying with cash rather than credit.
If you’re lucky, your parents taught you self-control as a child. If not, remember that the sooner you learn the important life skill of delaying gratification, the sooner you’ll be able to keep your personal finances in order as a habit.
One of the most important ways to exercise financial self-control is also one of the simplest. If you wait until you’ve saved enough money for whatever it is you require, you can use a debit card instead of a credit card for all everyday purchases.
A debit card immediately deducts funds from your checking account (with no additional fees), whereas a credit card is essentially a high-interest loan unless you can afford to pay off the balance in full every month. If you develop the dangerous habit of putting all of your purchases on credit cards, you will not only be paying interest on a pair of jeans or a box of cereal, but you may also be paying for those items in 10 years.
Credit cards are certainly useful; some offer excellent rewards, and timely repayment helps you build a good credit score. However, it is critical that you use them to your advantage rather than the lender’s, who profits from your bad habit of amassing interest-bearing balances.
Keep credit cards only for emergencies, and always pay your bill in full when it arrives. Also, don’t apply for every credit offer you get—and never carry more cards than you can manage.
- Beware of Bad Advice: Educate Yourself
If you don’t learn to manage your money, others will find ways to do so for you. Some of these people, such as unscrupulous financial planners, may have bad intentions. Others, such as relatives who make blanket recommendations about the importance of owning your own home—even though the only way you could afford to buy right now would be to take on a risky adjustable-rate mortgage—may be well-meaning but not fully informed about your circumstances.
Instead of relying on unqualified advice, take control of your financial future by reading a few basic personal finance books. Once you’ve armed yourself with knowledge, don’t let anyone derail you—whether it’s a significant other who drains your bank account or friends who want you to go out and waste money with them every weekend.
- Learn to Budget: Understand Where Your Money Is Going
After reading a few personal finance books, you’ll understand the significance of two rules that every personal finance advisor repeats. Never allow your expenses to exceed your income, and always keep track of where your money is going.
When you start tracking your spending, it can be a valuable wake-up call to realize how much the cost of buying coffee from a barista every morning adds up over the course of a month.
Unlike a salary increase, which is largely determined by your boss, small changes in your daily expenses, such as making coffee at home, are entirely within your control—and they can have the same impact on your financial situation as a raise.
Keeping your larger monthly expenses, such as rent, as low as possible can save you even more money in the long run.
Even if you can afford an amenity-packed apartment right now, choosing a simpler place—and saving the money—could put you in a position to own a condominium or a house much sooner than your friends who pay high rent.
The first step toward making your money work for you is to understand how it works.
- Pay Yourself First: Create an Emergency Fund
“Pay yourself first,” as the saying goes in personal finance, means saving money for emergencies and the future. This simple practice will not only keep you out of financial trouble, but it will also help you sleep better at night.
Even on the most limited of budgets—regardless of how much you owe in student loans or credit card debt, or how low your salary is—there are ways to put at least some of your money into an emergency fund every month.
Another advantage is that if you develop the habit of automatically putting money aside for savings, you will stop viewing savings as optional and begin to view it as a necessary monthly expense. You’ll soon have more than just an emergency fund—you’ll have money for retirement, vacation, or even a down payment on a house.
If you put your money in a traditional savings account, it will be safe and accessible whenever you need it.
However, because that type of account earns almost no interest, inflation will erode the value of your savings over time. You can instead place your fund in a high-yield savings account, a short-term certificate of deposit (CD), or a money market account. Simply ensure that the rules of your savings vehicle allow you to access your money quickly in an emergency.
- Begin putting money aside for retirement now
Just as your parents sent you to kindergarten to prepare you for success in a world that seemed eons away, you must plan for retirement far in advance—that is, right now.
Learning about the power (some say magic) of compound interest is a great way to get started on the right track.
Once you have done so, the wisdom of beginning your retirement fund as soon as possible will be undeniable. Compound interest can be thought of as “interest on interest,” which means that you will earn interest not only on the principal (the money you put in), but also on the interest (the money the bank pays you for holding your principal). Compound interest boosts your savings by growing your money at a much faster rate than simple interest, which is calculated only on the principal.
Other ways on how to be money smart in your 20’s include:
- Take Charge of Your Taxes
- Take care of your health
- Safeguard your wealth
- Surround yourself with the right people.
- Be aware of your spending habits.
How to Be Money Smart as a Teenager
- Recognize Time’s Influence
You’re probably not making a lot of money right now, but that’s okay. Time is of the essence. And you have a lot of it. Consider the following example:
You have $1000 at the end of your summer job. You invest it at a 5% annual rate of return. You make no further contributions for the next 50 years. You will have $11,467.49 at the end of 50 years.
If you did the same thing but only had 30 years to watch your money grow, you’d end up with $4,321.99.
Of course, you’ll be investing much more than $1000 over those years, so imagine how quickly your money will grow if you start early. Time is rarely on our side, but it is now on your side if you begin now.
- Begin a Money-Saving Habit
When was the last time you brushed your teeth? Hopefully, for many years by the time you’re a teenager. And because you’ve been doing it for so long, it’s become second nature.
When it comes to money, the power of habit is almost as important as the power of time.
A habit is something you do automatically without thinking about it too much.
James Clear, one of the world’s leading experts on habit formation, reveals practical strategies for forming good habits, breaking bad ones, and mastering the small behaviors that lead to big results.
If you start saving money now, you will have it for the rest of your life. Get into the habit of saving a portion of every dollar you receive, whether it’s a gift, an allowance, or pay from a job.
Half would be ideal, and now is the time to get started because you don’t have many expenses.
The older you get, the more difficult it can seem to save even 10% of your money, but if you started saving much more than that at a young age, it won’t seem so difficult because it’s just a habit.
- Keep Track of Your Spending
This can be difficult because as a teenager, you may be earning money by doing things like babysitting or mowing lawns, which are usually paid in cash. And cash is the most difficult to track.
Cash also tends to burn a hole in our pockets, so it’s best to keep it somewhere safe and out of sight.
When you’re young, it’s a good idea to establish a relationship with a bank. When it comes to getting a loan to buy a house in fifteen years, having a long track record with a bank can be beneficial.
Make sure to investigate the various types of accounts that banks provide. Some will charge you fees if you do not maintain a minimum balance. You should never pay a bank any fees for any reason.
Take your cash and open two accounts: one for checking and one for savings. Remember that you are saving half of every dollar you receive, so half goes into checking and half into savings.
It is critical to keep your money separate. When money that should be saved is mixed in with money that should be spent, it tends to vanish.
You can obtain a checking account debit card. You can now spend money with your debit card rather than cash, making it easier to keep track of your spending.
The card also allows you to deposit cash into your accounts at ATMs rather than going to a teller every time.
- Educate Yourself
You’re probably not getting much personal finance education in school, if any at all. I’ve built an entire conspiracy theory around this.
The more you understand about money, the less you’ll be tied to a job for decades making someone else’s money, and the less consumer crap you’ll buy.
So you can see why it’s in certain groups’ best interests to keep you in the dark about money.
Discuss money with your parents. Some families dislike discussing money because they believe it is impolite, vulgar, or simply none of your business.
But they’re wrong, and it’s because of attitudes like these that so many people leave home with no idea how to handle money or anything else related to it.
You don’t have to rummage through your parents’ bank accounts to have a conversation about money. One of the most effective ways to start a conversation is to ask what the most important piece of financial advice they can give you.
Parents enjoy giving advice, and asking such an open-ended question can help to initiate a more in-depth discussion.
- Make Sound College Decisions
A wise college decision may include deciding not to attend or deferring attendance for a few years while working full-time to help pay for it.
Attending a local college for two years and then transferring to a more expensive, prestigious school could be a wise decision. It entails applying for every grant and scholarship for which you are even remotely qualified.
Choosing to major in something that people are paid to do is a wise decision.
Many of us would have preferred to major in history or literature, but those aren’t particularly lucrative fields. Taking out tens of thousands of dollars in loans for these types of degrees is a bad investment.
Having a debt that can almost never be discharged will color the rest of your life for decades to come.
If you graduate from college with massive debt, you may have to put off things like buying a home and starting a family for years. Overall, college is still a good investment, but the days of attending the best school that will put you in debt are long gone.
How to Save Money – How to Be Money Smart
- Pay off Your Debts
- Establish Savings Objectives
- First and foremost, pay yourself.
- Quit smoking
- Go on a “Staycation”
- Invest to Save
- Utility Cost Savings
- Bring Your Lunch
- Open an Interest-Paying Account
- Calculate Your Spending Per Year
Money Management – How to Be Money Smart
Money management refers to the processes of budgeting, saving, investing, spending, or otherwise overseeing an individual’s or group’s capital usage. The term can also be used to refer to investment and portfolio management.
The phrase is most commonly used in financial markets to refer to an investment professional who makes investment decisions for large pools of funds, such as mutual funds or pension plans.
Understanding Money Management
Money management is a broad term that encompasses and includes services and solutions from all sectors of the investment industry.
Consumers have access to a wide range of resources and applications on the market that enable them to manage nearly every aspect of their personal finances on their own. As their net worth grows, investors frequently seek the advice of financial advisors for professional money management. Financial advisors are typically associated with private banking and brokerage services, providing assistance for comprehensive money management plans that may include estate planning, retirement planning, and other services.
How to Be Money Smart with Money Books
Finance/money books assist you in better managing your money. At the most fundamental level, you can learn personal finance fundamentals, such as why paying yourself first pays off or how to manage and pay off debt, to become smarter and more confident with your money. But it does not end there. They can also teach you how to invest, manage a mortgage, save for retirement, and ultimately help you avoid common money pitfalls in order to cultivate a healthy relationship with your money.
Money tips – How to Be Money Smart
Finally, here are some general financial guidelines to keep in mind
- Keep track of your money and store it safely.
- Happiness cannot be purchased, but being willing to share usually results in a smile.
- Avoid all forms of gambling.
- Things that appear too good to be true are usually true.
Frequently Asked Questions on how to be money smart
Why start saving for retirement in your twenties?
Again, because of the way compound interest works, the sooner you begin saving, the less principal you will need to invest to reach the amount required to retire.
How Do I Choose a Financial Advisor?
A fee-only financial planner is an excellent choice for a young adult.
Unlike a commission-based advisor, who receives a commission if you enroll in their company’s investment plans, a fee-only planner has no personal incentive other than your best interests, so they have no reason not to provide you with unbiased advice.
Why is it important to be money smart?
Whether it’s teaching them to save their allowance or how to invest their hard-earned money, financial literacy will help them survive in the real world and in this difficult economy. After all, not everyone has unlimited income — and even if you do, that doesn’t excuse you from reckless spending.
Why should you save money?
Saving money is important because it helps to mitigate the impact of financial emergencies and unexpected expenses. Saving money can also help you pay for large purchases, avoid debt, reduce financial stress, and gain a greater sense of financial freedom.
Conclusion on How to be Money Smart
Remember, you don’t need an MBA in finance or even specialized training to become a financial management expert. Following these basic rules can put you on the path to financial security, which is the foundation that will allow you to achieve your goals.
Following these basic rules can put you on the path to financial security, which will allow you to build the rest of your dreams.