Experience is a good teacher—it helps you learn life’s lessons in unforgettable ways. You can master good money management skills by learning from the experiences of others. Take a look at three of these important lessons about money that will help you avoid money troubles and keep your finances in check.
#1: Your Credit Report Matters
A good credit report makes borrowing money possible and allows you to take advantage of the low interest rates available to those with high credit scores. Earning and maintaining a good score takes work and attention, but it’s worth the effort.
A credit report contains lots of information about the way you handle your finances. Every time you borrow money, your transaction is reported to at least one credit reporting agency. Each month, your creditor sends your payment information to the agency. They report the amount you owe currently, your original balance, and whether you made your payment on time. It’s a good idea to check your report at least annually.
The best way to earn a great score is to
- make monthly payments on time
- keep your balance 50% below your credit limit
- avoid owning too many credit cards
- keep your debt/income ration low
#2: Save For the Future
One of the best ways to get the most out of your money is to save for future purchases or emergencies. Buying the things you want without relying on credit cards or loans allows you to avoid paying interest. It’s a lot nicer to bank the money you save on interest than to pay it to your creditors.
Emergency expenses often end up as credit card purchases. By setting aside cash each month in an emergency savings account, you can build a fund that covers anything from new tires to an expensive furnace repair. Paying for emergencies with cash you have saved helps you avoid additional debt and builds confidence in your ability to meet financial challenges.
Even if the rate you earn on your savings account is low, you are adding instead subtracting to your balance. Every dollar you save or earn in interest moves you closer to good financial health.
#3: Credit Card Interest Is Too Expensive
Using a credit card to buy what you want may be easy, but it’s expensive. Perks you earn may make credit card use attractive, but unless you pay off your balance monthly, you will end up paying an interest charge. Often, the cost of interest is greater than the value of any perk you may earn.
Before you make the decision to use credit, try using a debt calculator to determine how much you’ll pay in interest. Once you discover the real cost of using your cards, it’s a lot easier to start paying with cash.
These three lessons about money can help you build a smarter budget and avoid common money management mistakes. By adding additional money-related goals and habits to your life, you add stability and strength to your overall financial health.