The Cliffs Notes Guide to Money 101

Have you ever hung out with a group of friends and the conversation veers toward money?

You may feel anxious as your peers discuss their savings and investment portfolios. As for you? You keep quiet as you’re completely overwhelmed.

Yet, you’re not alone when it comes to anxiety over money. In fact, many Americans feel uncomfortable talking about wealth and other financial topics. According to a global study on financial literacy conducted by the S&P Ratings Service in 2015, 43% of Americans are financially illiterate. This means that they didn’t have the basic financial knowledge required to make informed and sound decisions about their money.

The U.S. Government is also aware of this problem and designated April as National Financial Literacy Month – all with the hopes of raising financial knowledge. Luckily, gaining insight into your finances doesn’t require years of extensive study. Even a cursory understanding of money matters can have a significant impact upon your financial situation.

To help you become more financially literate, we’ve created a guide that breaks down some of the most important aspects of money management, including savings, budgeting, borrowing, and long-term financial planning. We’ve also included some financial terminology that can help you make informed decisions to boost your savings. Read on to learn more.

Savings 

If getting in shape was your No. 1 resolution for this year, saving more money may have been No. 2.

The majority of Americans desperately want to save more money, but unless you have developed consistent and actionable goals, it can seem daunting.

One simple way to effectively save more money is to enroll in an automatic savings program, like the one offered at Chime. This way, you can start saving money without even thinking about it. With a Chime account, every time you make a purchase with your Chime Visa® Debit Card, transactions are automatically rounded up to the nearest dollar and transferred into your Chime Savings Account. The program also allows you to automatically set aside a percentage of each paycheck into your savings as soon as you get paid.

There are several ways to save more money and your options often depend on your personal situation and lifestyle. Yet, regardless of how much money you earn, if you have an employer-sponsored retirement plan, or a 401(k), it’s a wise idea to contribute as much money as you can – especially if you can save money directly from your paycheck. If a 401(k) plan isn’t an option for you, consider opening an individual retirement account (IRA) to start saving now for your future.

If you’re looking to pull money out of your savings before retirement and want a safe way to earn money, consider opening a money market account (MMA). According to Investopedia, money markets accounts pay interest rates that are typically higher than at savings accounts. Many banks, however, require higher minimum balances in money market accounts in order to avoid fees and earn higher interest.

Budgeting

Another crucial step to saving money is creating a budget. You can start by taking a close look at how much money is coming in and how much is going out. To further explain, your net income is essentially the money you take in each month from your job, minus taxes and deductions. Once you have that net income figure, you can make a list of all your fixed expenses, which are costs that do not change month to month. This may include your rent or mortgage, utility bills and loan payments.

With this information, you can build a budget and figure out how much you can effectively allocate to your savings account.

Bari Tessler, a financial coach and author of The Art of Money: A Life-Changing Guide to Financial Happiness, subscribes to the 50/30/20 budgeting plan, initially developed by Senator Elizabeth Warren. The plan allocates 50% of your net income to fixed expenses, 30% to discretionary spending, and the remaining 20% to savings.

Tessler says that it’s not always possible to save twenty percent, and unexpected expenses may make it impossible to save at all. She emphasizes that your relationship with money will last your entire life, and ultimately, the amount you can save is very personal and can change over time.

Borrowing and Debt

Want to borrow money to buy a car or for a personal loan?

Oya Altınkılıç, a finance professor at the Robert H. Smith School of Business at the University of Maryland, recommends understanding the borrowing process and what will be expected of you.

For instance, getting approved for a loan depends heavily upon your creditworthiness. And this can be determined in part by your credit score, a three-digit number that gives lenders a snapshot look at how likely you are to repay your debt. Lenders will also look at your current assets, which are essentially anything of value that you own that can be converted into cash, such as real estate or cars. You should have a general idea of the value of your assets, including cash.

If you have a credit card, you may think it’s a good idea to buy expensive items on your card, perhaps instead of taking out a personal loan. However, credit card debt can pile up fast, especially if your annual percentage rate (APR) is high and you are paying hefty interest charges every month.

Just remember: Borrowing money typically has a cost, and it’s best to determine that cost upfront and evaluate it against your long-term financial goals before deciding whether to proceed.

Seek Professional Advice

Professor Altınkılıç says that if you don’t feel comfortable investing or managing your finances on your own, it’s a good idea to seek advice from a financial expert.

“You cannot beat the market on your own so don’t try. It is best to hire a financial professional who understands your short- and long-term investment goals, as well as your risk tolerance.”

“The financial industry is one of the most highly-regulated industries, and you have a higher chance of being successful if you choose someone who is reputable.”

To that end, you can begin your search for a financial advisor at the National Association of Personal Finance Advisors (NAPFA).

Start Saving More Money Today

Tessler at The Art of Money explains that many financial decisions are based on beliefs about security, abundance and fear that were developed during the childhood years.

People get paralyzed by money because of shame and guilt about not having enough saved or not investing earlier. Instead of dwelling on the past, however, it’s important to create sustainable practices around money – starting today.

Are you ready to level up your financial literacy and start saving more money? We thought so.