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Mrs. Picky Pincher is the blogger and resident klutz at www.pickypinchers.com. She’s on a journey to crush $225,000 of debt and achieve financial independence.
There I was, 21 years old with a fresh college degree in my hand. I’d never had a job, never had bills, and didn’t have my own bank account. Doomed from the start, I had a stupid sense of hyper-optimism.
But within months I carried a balance on my credit card and cried over my $0 retirement account.
Needless to say, I learned most of my money skills from the School of Hard Knocks. Adulthood barreled in with a big punch of Reality the minute I got my first rent bill. I dramatically sobbed the first time I filed taxes.
I had to quickly learn how to create a budget on my small and variable income. I had to learn about credit cards (the hard way, of course) and the importance of saving. It took me a few years, but today I finally have a healthy grasp of my finances.
Money skills changed my life. Instead of scraping by every month, today I’m paying off debt and slowly building net worth. I now realize there are a few essential skills everyone should have to manage their money.
Here are four money skills everyone should know!
1. Have a savings mindset
Yeah, yeah, yeah. Everyone talks about the importance of having X amount of savings at all times. But that’s easier said than done, especially if you don’t have a savings mindset.
When I was fresh out of college I earned $15/hour. That wasn’t terrible pay for the work and I was stoked to have real money in my hands. Instead of pumping funds into a savings account, I bought new shoes. And a pet rabbit. And fancy wine.
I was thrilled to make my own money, and I spent it with reckless abandon. But then my company stopped performing well, and before I knew it, they slyly cut my hours. My pay shrunk week after week and soon I was in hot water.
I put $20 a week into my savings account as a “just in case” fund. Eventually I had $600 in savings. That $600 was my lifeline when I went a month without a paycheck while transitioning jobs. Without that savings cushion I would have either gone into debt or gone hungry.
I developed a savings mindset out of necessity. I put away $100 a month and it definitely was painful on my small income, but it saved me. There are real consequences to not having emergency savings.
Set up automatic transfers to a savings account so you can effortlessly build savings. As they say: pay yourself first.
2. Know what the hell an interest rate is.
I am bad, bad, bad at math. My eyes glaze over when people start talking numbers. Because of my mathematical ignorance, I had zero idea what interest rates were. And I really didn’t care.
I put my “fun money” expenses on a credit card and only paid the minimums. I was amazed by this newfound ability to buy things now and pay for them later!
That was until good ol’ interest reared its ugly head and pummeled my finances with a 16% APR. I learned about interest rates the hard way and realized carrying a balance was a great way to lose a lot of money.
Know the interest rates on your car , student loans, mortgage, and credit cards. Once Mr. Picky Pincher and I decided to get out of debt, we prioritized the highest-interest debts first. The higher the interest, the more we’d lose in the long term. That’s why we paid off those evil credit cards first.
Be smart about the debt you assume!
3. Make a budget and stick to it.
Yeah, I didn’t have it together, y’all.
I was forced to learn budgeting when I went a month without income. I found a salaried position that paid twice my $15/hour job, but I wouldn’t get a paycheck for a month. I knew my income would double once I got my first paycheck , but rent was due tomorrow.
I crafted a crude budget in a Google Sheet. It included my income, credit card payments, rent, car payment, insurance, groceries, utilities, and entertainment. I had no idea what my actual expenses were, so my first month’s budget was grossly wrong.
The next month I disregarded my budget completely and spent $200 on a new haircut and manicure–yes, really. But soon afterwards I realized I didn’t have money for groceries!
Making a budget is half the battle. It’s so, so important to stick to a budget. Mr. Picky Pincher and I meet once a week to go over our budget and adjust our spending habits.
Know how to create and follow a budget to see where your money goes.
4. Avoid debt like head lice
My parents always said debt was normal. It wasn’t possible to get out of debt; it was something that everybody had, and that was that.
This mindset carried over into my adulthood. I put everything imaginable on my rewards credit card. I carried the balance month to month, occasionally paying it off for the fun of it. Once hard times hit, though, credit card payments were painful. Especially when coupled with student loan payments and a whopping $450/mo car payment (for a rinky-dink Honda Fit, no less).
It wasn’t until Mr. Picky Pincher and I got married that I realized how important it is to avoid debt. We lived paycheck to paycheck and had $0 for savings. We became avid followers of Mr. Money Mustache and soon realized our monthly debts were the problem. We cut our grocery costs with smart shopping strategies, moved to a cheaper apartment, and used the Snowball Method to pay off our credit cards.
Without debt, we were able to build a healthy savings account and save for the home of our dreams.
Nowadays we avoid debt like head lice. We bought and renovated our first home back in September and paid for the renovation with cash. If we can’t pay for it from our debit account, we won’t buy it.
Learn to avoid debt and try to pay cash for everything. Future-You will appreciate it!
The Bottom Line
Sometimes the best way to learn is by stumbling through life. I appreciate my money struggles because they’ve made me the frugal lady I am today. Thanks to these four skills, I save 50% of my income and I’m on track to be financially independent by age 35. Not too shabby, eh?
Take the time to develop positive money skills. They’ll pay off not only today, but for decades to come.
We want to know: What money skills do you think everyone should have?