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To understand your financial picture, look at how much you earn and how much you spend. Making a list of your monthly bills is a start, but you should also look realistically at how much you spend.
This exercise helps you assess your needs versus your wants. Your rent or mortgage is a need. Your end-of-week dinner out is a want, even though after a long week you may feel you need it! The more detailed your budget, the more accurate it will be.
We’ve all heard that we should save for a “rainy day.” But often by the end of the month many people have very little left over. Small amounts can really add up, but it’s also easy to spend that end-of-the-month remainder.
Try putting that small amount aside in savings before you pay anything else. This system, known as “Pay Yourself First” is like a gift you give to yourself each month. If the rainy day arrives, you can use your emergency money instead of a credit card.
Establishing credit is important. But managing debt is important, too. When you purchase with credit and pay it off in a timely manner, you are establishing a track record of creditworthiness. This raises your credit score.
Higher credit scores help you to get lower rates when you need to borrow in the future. If you already have debt, making a plan to pay it down can save you money, as well as boost your credit score.
Loans, for most of us, are a part of life. After all, only a tiny fraction of people can buy a house without a mortgage! But not all borrowing is the same.
Learning how to compare rates and loan terms is an important part of overall financial literacy. If you already have loans at a higher rate, you may be able to negotiate a lower rate and save on interest payments. This is also true for student loans, which can also be refinanced.
Making a financial plan to care for your family in case you are no longer able to provide for them is another important part of financial literacy. As you work toward building a strong financial foundation, remember that life insurance, long-term care insurance and disability insurance can help protect what you’re building.
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