You can’t pick up a newspaper or magazine these days and NOT see some article about the economy, interest rates, or some other force that may impact your home finances.  Many of us have learned about personal finance the hard way (me included) – through trial and error.  I’m still amazed that we don’t teach the basic concepts of personal finance to high school students before we unleash them into the wide, wide world of credit cards, home and car loans, or retirement planning.  It is truly a disservice to these youngsters.

That being said, there are a few things that I’ve tried to impart to my own children as they have moved through their college years and dipped their toes into the deep end of the “adulting” pool.  While these are very basic, it is a solid foundation for anyone to build their financial house upon, so it is – in general – good advice.

Understand Your Expenses

To get a hold on your finances, you first have to understand where your money is going every month.  That means – yes, you have to track it (which is never fun).  This can be by simply reviewing a past bank statement or keeping all your receipts for a month or more.  For example, if you find that you’ve got a ton of ‘Starbucks’ receipts in that pile, you may need to reassess your daily caffeine needs (or think about investing in a “Mr. Coffee” machine for home).

Create and Maintain a Budget

Ugh.  Make up and maintain a budget?  Yes, it is necessary, I’m afraid.  Most of us don’t have the self- discipline to effectively track all of our incoming and outgoing monetary transactions in our heads, so it has to be written down and tracked.  There are plenty of software programs that allow one to do this (both free and subscription-based), or it can be written down on a piece of paper.  The general rule of thumb to follow is the 50/20/30 rule.  50% of your take-home pay should be allocated for “needs” (rent/mortgage, transportation, utilities, food, etc.), 20% should be allocated towards savings/investing/debt reduction, and 30% should be allocated towards “wants” (discretionary spending).

Understand Debt – Get Out of It (and Stay Out) Where You Can

While it can be used effectively (for say, a home mortgage or higher education), most debt is not good.  Credit card debt (the absolute worst) costs people thousands of dollars a year in interest rates and fees – all for purchases that they probably could have held off on until they had the funds to actually pay for that desire in the first place.  Do you think a 20-30% interest rate is outrageous?  Of course it is, but most people pay that every month on their credit card balances.  That’s an awfully expensive ‘Big Mac’ or move ticket.  Making an effort to get out of debt (and stay out of debt) is one of the smartest financial decisions one can make, and it’s easy to see the return on one’s investment (by simply not paying those ridiculous interest rates).

Establish and Emergency Fund

Do you have an emergency fund?  Most Americans don’t.  Could you quickly come up with $1,000 to cover an unexpected car repair or medical bill?  That’s what an emergency fund is for.  If you can set aside $1,000 (either all at once or over time), park it somewhere in a separate account where you can quickly access it, and then LEAVE IT ALONE, you’ll be surprised at the peace of mind it provides.  Once established, you can continue to add to it so that you can eventually use it for larger emergencies (like covering a month or more of expenses in case of job loss or medical issues).  An established emergency fund can help prevent life’s accidents and problems (which will happen) from financially breaking you.

Save For Retirement (and Other Goals)

Let’s face it, the social safety net (i.e. Medicare, Social Security, etc.) is on shaky ground.  Many folks in their 20s, 30s, and even 40s may not even see any support or relief when it’s time for them to retire, so that means it’s up to each individual to look out for and plan for their own future.  Whenever you get a raise at work, job change (that increases one’s salary), or even a tax return, the golden rule is pay yourself first.  Set aside a portion of that windfall to invest in a 401(k) or other work-sponsored retirement plan.  Create and invest in your own Roth IRA.  The biggest asset young people have with their money is time – time for those investments to grow until they are needed.  You can also have other financial goals (other than retirement).  It may be saving for a new vehicle, a dream vacation, or even a big-screen TV.  The point is to save the money now – before it becomes lost in your monthly financial bills and other expenses.

This is barely scratching the surface on all it takes for successful navigation of personal finance decisions.  There’s lots of information out there on “how” to do it, and it can be overwhelming.  The point is to work on establishing the basics, then as things progress (and your comfort level rises), you can take in more and more financial information and ideas.  You can even consult with a financial planner, who can help guide you through the process.

So put away that credit card, pay it off as quickly as you can, and open a savings account instead.  You’ll sleep better at night knowing you are taking control of your financial future.