When was the last time you used the Dewey Decimal System to find a great new novel? Or the last time you referenced an element’s atomic number on the periodic table? Even though money management is a huge part of life, it seems like you’re on your own to learn how to navigate the maze of personal finance.
If you didn’t acquire real-life financial skills in school, you’re not the only one who could use a little Money 101. We’ll break down five of the most crucial financial skills in life that you should master now.
1. How to Use Credit Wisely
Credit can be a useful tool, especially when your score is high enough to allow you to access better offers and opportunities. But if you have poor credit, you may have a harder time getting approval for loans, leasing a flat or even securing employment. That’s right, some prospective employers take a look at your credit report, especially for positions in finance, banking or similar fields.
When you’re just starting out, you need to register on the electoral roll first in order to build credit. If you haven’t already, open a bank account and look for beginner credit cards. You can also find secured credit cards that require a deposit, perfect for those just starting to build credit. Or, if you have a good history with your bank, you can also apply for a bank credit card.
In any case, when you use your credit card, you should always aim to pay the balance in full each month to avoid getting behind. If not, you’ll pay interest, depending on the credit card’s terms, and will end up spending more for your purchase than you would have if you paid in cash. But using your credit card responsibly is a great way to start building or repairing credit. The same basic principle applies to other forms of credit: Use only what you can responsibly pay back, and make your payments on time.
2. How to Check Your Credit Report
Protect yourself and your identity from unauthorized credit usage or incorrect reporting by monitoring your credit report. You should check your credit score on a regular basis, even if you’re not actively using credit. Checking your score is free. Additionally, some banks offer credit alerts or you could use a premium service that actively monitors changes that affect your score and report. However you access your score, be sure to make it a habit.
Identity theft can happen to you even if you’re not a victim of a mass data breach that’s made global headlines. If you see something that’s inaccurate or fraudulent on your credit report, you should follow the appropriate course of action to correct the issue. This includes registering for CIFAS, a fraud prevention service, detailed recordkeeping of the fraudulent activity and closely screening your personal accounts.
3. How to Budget Properly
Not following a budget is like preparing a meal without a recipe; you might be able to get by, but you can easily lose track of what you have and what you actually need to make it work. Without a budget, you won’t know what lifestyle you can sustain while saving for the future. You can easily set up your own budget worksheet in Excel to track your income and expenses. Whether you’re just starting off your career or trying to pay off debt, the 50-30-20 rule is a solid budgeting rule of thumb to ensure you’re not living beyond your means.
4. How to Balance a Chequebook
While some older adults learned how to balance a chequebook in secondary school, this skill is missing from today’s curriculum. Knowing what goes in and out of your account each month can help you avoid overdraft fees, double-check your bank’s accounting and help you scour your accounts for fraudulent activity. But you don’t have to manually balance your chequebook; if you’re properly managing your budget (see previous step), you should have all your expenses and income neatly prepared in a spreadsheet. Balancing your chequebook just means that you’re verifying this information against your bank statement for accuracy.
5. How to Utilise Compound Interest
While the United Kingdom’s Pension Protection Fund exists to help people save for retirement, the amount you receive might not sustain your current quality of life years down the line. But that doesn’t mean that you can’t save for retirement on your own. If you haven’t already, you should start saving now. Starting early can increase your quality of life in retirement while also giving you peace of mind for the future. More importantly, you can utilise the power of compound interest, or adding interest on top of interest. This means that your invested money is actually helping you earn more money. Opening your own Individual Savings Account (ISA) is just one way to start earning compound interest.
The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.