Financial Basics Start Young

Were you always the kid selling mud pies on the playground instead of swinging and playing with friends? Did you have a lemonade stand in front of your house during the summer instead of swimming in your pool? If so, what did you do with the money? Maybe you saved it, or maybe you spent it.

A comment by Matthew Denos on our post Why Do We Have Debt? last week discussed setting solid financial values at a young age.  The basics of good financial values start with a good education. Whether financial values are taught at home or at school, they are very important. Financial values set the foundation for future financial decisions.  If we learn about money management at a young age we will know how to properly manage our money later in life…when we actually start earning money.

Where did you learn to manage your money? Maybe it was from your parents, or your grandparents, or maybe it was from watching an older sibling. As you know I’ve had my financial ups and downs and I have definitely learned from my mistakes.  As they say “If I only knew then what I know now.”

My top 4 Financial Lessons to Live By

Save at least 10% of your annual gross income. We should put this money aside and keep it locked away for a specific purpose. I don’t believe in saving just for the sake of saving. It’s good to have a goal such as a mortgage down payment or an annual trip. There are several ways that we can save such as through payroll deductions, lump sum contributions, or Pre Authorized Contributions to our own personal investments.

Pay bills on time. If you don’t have money for all of your bills then we need to prioritize. I prioritize my bills starting with the roof over my head and some food in my belly; everything else is an extra cost in my opinion.  I consider credit cards and other debts as extras because there is no point in having an amazing credit score if you have nowhere to live.

Have a budget and stick with it.  This will ensure the 10% savings as well as making sure our bills are paid on time.  My personal exception to this rule is when I change jobs.  I never save anything from my first two (biweekly) pay checks.  After my bills are all paid I enjoy the extra money from my new job for the first month.

Don’t have a high credit card limit.  I use the three month rule as a general guideline.  This means that your credit card limit should be equal or less than the equivalent of three months net salary.  However, if you have a messy financial past then have a credit card limit equal or less than the equivalent of one months’ net salary.  This way it’s easy to pay off if we ever max it out.  We should use our credit cards to build good credit.  They are a stepping stone for bigger financial goals such as a mortgage.

What is the best financial advice you ever received?

Photo By EvilErin