Entering adulthood brings a long list of things to figure out—bills, budgeting, taxes, credit scores, and how to keep your plants alive (or at least pretend you did). However, the one thing most of us didn’t get a lesson on in high school is how to manage our money effectively. Sure, we learned how to find the area of a triangle and the difference between an adjective and an adverb, but when it came to personal finance, we were left to fend for ourselves. But don’t worry! It’s never too late to unlock those essential financial skills. Let’s talk about what they should’ve taught us in school, and how to catch up now.
Building a Budget: Your Roadmap to Financial Success
Imagine your finances are a car, and a budget is your roadmap. Without a budget, you’re just driving around aimlessly, hoping you don’t run out of gas before you reach your destination. But with a solid budget, you can direct your money where it needs to go, whether that’s saving for a house, paying off debt, or treating yourself to a vacation.
The first step in building a budget is figuring out where your money is going. Track your spending for at least a month—yes, every coffee, every impulse buy. It might sound tedious, but this is the only way to figure out where you’re leaking money. You can use budgeting apps like Mint or YNAB (You Need a Budget) or simply jot it down in a notebook.
Once you have a clearer picture of your expenses, it’s time to make a plan. A popular method is the 50/30/20 rule. This means 50% of your income should go to needs (rent, groceries, utilities), 30% to wants (dining out, entertainment, shopping), and 20% to savings and debt repayment. Of course, life isn’t always so neat, and the rule can be adjusted based on your individual needs and goals. If you have significant debt, for example, you might want to allocate more toward paying that off first.
It’s also important to be flexible. Budgets aren’t meant to be rigid, but rather guides. Life changes—sometimes you get a raise, sometimes an unexpected expense pops up. The goal is to have enough breathing room in your budget to adjust and keep moving forward. Don’t stress if you can’t stick to your budget perfectly. Just keep trying, adjusting as you go, and celebrate small wins.
Understanding Credit: More Than Just a Score
We all hear about credit scores, but how many of us really understand them? A good credit score is like a key to many doors—lower interest rates on loans, higher credit limits, and access to things like mortgages and car loans. But here’s the kicker: nobody ever told us how to build and maintain that magical number.
So, what is credit exactly? Simply put, it’s your ability to borrow money and repay it. Your credit score reflects how good you are at paying back what you owe. But it’s more than just paying your bills on time—it’s about understanding the ins and outs of credit cards, loans, and the interest that piles up if you don’t stay on top of things.
One of the first things to do is get your free credit report. In the U.S., you’re entitled to one free report each year from the three major credit bureaus: Experian, Equifax, and TransUnion. Don’t just check it once and forget about it—your credit history impacts so much of your financial life, and you need to stay on top of it.
Next, learn the difference between a hard inquiry and a soft inquiry. A hard inquiry happens when a lender checks your credit for a loan or credit card application. This can temporarily lower your score. On the other hand, a soft inquiry happens when you check your own credit score or when a company checks it for a pre-approval offer. Soft inquiries don’t affect your score, but hard ones do.
Lastly, understand how to maintain a healthy score. It’s about more than just paying your bills on time. A big factor in your score is your credit utilization ratio—how much of your available credit you’re using. Ideally, you want to keep this number under 30%. This means if you have a $1,000 credit limit, try to keep your balance below $300. Simple? Yes. Easy? Not always, but it’s important.
Emergency Funds and Saving for the Future: Not as Fun, But Crucial
Saving money for the future doesn’t always feel exciting. It’s hard to get excited about putting money into an emergency fund or retirement account when there are so many immediate, fun things to spend on. But trust me, setting these things up will save you a world of stress down the road.
Start with the emergency fund. Think of it as your financial safety net. It’s there for the unexpected—whether your car breaks down, you lose your job, or an emergency medical bill comes your way. Experts recommend having at least three to six months of living expenses saved up in an easily accessible account. This might seem overwhelming at first, but remember, it’s about taking baby steps. You don’t have to save it all at once. Even $50 a month adds up over time.
Next, think about saving for your future—retirement, kids’ education, or other long-term goals. It might seem way too early to think about retirement when you’re in your 20s or 30s, but the earlier you start, the better. Take advantage of employer-sponsored retirement plans, like a 401(k), especially if your employer matches contributions. That’s free money! If your job doesn’t offer a 401(k), consider opening an IRA (Individual Retirement Account) to start saving.
You don’t need to be an expert investor to get started. Start with low-cost index funds or target-date funds that automatically adjust as you get closer to retirement age. The key is consistency—set up automatic transfers into your savings account, so you don’t have to think about it. Pay yourself first, just like you would any bill.
While these financial skills weren’t taught in school, they are critical to managing your life as an adult. Whether it’s understanding your credit score, budgeting to reach your goals, or putting money aside for an emergency, these habits will set you up for long-term success. And remember, it’s not about being perfect—it’s about being informed and making gradual improvements. So go ahead, take control of your finances, and unlock the power of financial independence!