When I graduated high school, I thought I knew everything. Much to my dismay, I realized I didn’t, especially when it came to money. My mistakes left me with $60K in debt, and no clue how to (or why I should) pay it back. If there’s someone in your life you can save from these mistakes, I encourage you to share this with them. And if there’s anything on this list you’re still unsure about make it a priority to educate yo’ self on these finance lessons.
1. Basic Budgeting
When I was in school, I thought a budget was what you were on when you were broke. I had no idea what the scope of the word “budget” could mean. Businesses use a budget to plan, control, and evaluate their spending & earning. It’s the same concept in personal finance. We should treat our bank account like a business instead of a bottomless pit.
2. How to Read a Pay Stub
How many people still confuse net and gross income? (Guilty.) Everyone should know how to read their pay stub, because it’s not only vital to know what you’re making, it’s crucial to know how much is being taken out for taxes and other expenses. This knowledge is also necessary if you need to fill out a W-4, W-2, or ever, ya know, file your own taxes.
3. Compound Interest
Compound interest can be your best friend — or your worst enemy. Millennials have an average student loan debt of $41,000. Those loans accrue interest whether you pay them or not, and that interest compounds, so the $40K loan you thought you took out can double or triple over time.
On the other hand, when you invest your money, it increases at a rate of interest often higher than your federally-insured loans. I’m not talking day trading, but mutual funds and ETF’s are a long term investment that will increase what you put in exponentially.
4. Why Credit Is Important, and Why it’s Not
Financial aid offices don’t care about your credit history. They’ll give you as much money as you want, to put towards whatever you want, and tell you it’ll build when you pay it back. Good credit just tells banks you’re not a risk to lend money to; it is only important if you want to borrow more money.
The most important (if not only) reason to have good credit is to get a good interest rate on a home mortgage. Otherwise, your net worth is way more important than your credit score, in my opinion. And you don’t have to get a credit card to build credit, if you’d rather avoid them altogether. You can use rent payments and credit-builder loans to increase your score without subjecting yourself to the temptation of credit cards.
5. How to Pay for College
The most important factor in going to college without taking out student loans is school choice. If your parents aren’t paying — or anyone else, for that matter — it may not be worth going to an expensive private university. In my experience, fewer employers look at alma maters and instead look for resourcefulness and experience.
Obtaining college credits in high school is another way to save in college. If someone would’ve told me that, maybe I wouldn’t have dropped that Comp 1 class my senior year. And for heaven’s sake, if you can’t find the time to work a part-time job in college, then good luck being a working parent one day!
6. How to Save Money
Instead of calculus, I should’ve been learning how to negotiate auto insurance rates and the importance of having life insurance. There are times when you can and should negotiate to save money, and some things you should pay more on for good quality.
What are some financial tips you could’ve learned early on that would’ve saved you some headaches?
Image via Unsplash