December 1 2018

The Ultimate Financial Literacy and Personal Finance Guide

With every new day, our small financial decisions forge the way we live. That’s the reason why everyone needs to know the importance of financial literacy and personal finance. Both these terms go hand in hand and it is not possible to follow one without the other.
It is important that you start with opening a bank account. This will open different paths for your finances to grow. Personal finance starts right after the opening of a bank account. Once you have gone through the basics of budgeting, it’s time to step things up and dig deep into the world of financial literacy and personal finance.

What Financial Literacy and Personal Finance Holds?

The two important constituents of financial success hold many important details from our daily life matters. From knowing the difference between credit and debit to the financial planning for retirement, they include it all the details from most commonly discussed but ignored part of our lives. Without much ado, let’s dive into what financial literacy and personal finance hold for us:

Credit Card or Debit Card?

Cash and bank accounts are the basics on finances. In addition, these days plastic cash is also very common. Plastic cash means a debit card, credit card or the combination of both. Credit cards have a bad reputation as they let you spend more than you earn, which puts you and your finances in a bad spot.
If we ask for the opinion of conservative financial experts, they will surely recommend keeping to merely a debit card. Often, they might also recommend having a combination of both in case of emergencies. They follow the practice of not borrowing occasionally, which helps them keep their finances in check.
It is often a good strategy to keep both within your reach and make use of rewards offered by them. These reward offers can be used to make bigger purchases and save money at the same time. Let us discuss the pros and cons of debit and credit cards:

Debit Card:

Pros:

You spend the money you already have.
Tying them to your checking account can automate your monthly bills.
No limits on the number of transactions.
You can spend without carrying cash.

Cons:

Overall spending can increase because you keep using a single card again and again.
Some places require credit cards only.

Credit Cards:

Pros:

These cards come with a defined payback time. If you pay them back within this designated time, no interest is to be added. You can use this to make purchases and quickly pay them off.
A Credit card is a safer option when it comes to online purchases.

Cons:

Relying on these cards can lead to a serious debt situation.
You will have to pay every month to stay clean of debt.
Makes you want to buy things you don’t need.

Save What You Earn:

Saving is another important aspect of financial literacy and personal finance planning. A saving account helps you deal with emergency situations without draining the money you need for day to day dealings. Saving requires discipline and one must keep depositing money to acquire long-term gains.
It is important that you make a commitment you can keep. You don’t have to start by saving large amounts of money. Humble beginnings result in better financial situations.
Saving tips:

DO set up a portion of your paycheck to automatically go to savings.
DO start with cutting costs at things you don’t really need.
DON’T save for things that don’t matter in the long-term.
DON’T disrupt the absolute necessities for the sake of saving more.

Debt:

Debt is the money that one owes to a bank or some company that offers loans. Over the past years, the debt situation in America has become severe. According to the recent stats, the total debt for American consumers stands at $11.7 trillion. So, if you think you are the only one who must see the bank, you are not alone.
Robert Kiyosaki, a real estate guru, states that debt is good. According to him, acquiring debt can result in great things and you can invest this money for your own good.
A December 2014 Federal Reserve study revealed the average U.S. household has:

$15,611 in credit card debt
$155,192 in mortgage debt
$32,264 in student loan debt

Credit Scores:

If you have been up-to-date with paying off the money you owe, this means that you are going great financially. As a reward, you get a good credit score. These scores range from 300 (high risk) to 850 (low risk). The bureaus determine scores based on a group of factors which reflect your spending habits.
It is important that you never undermine the importance of these scores. Once you start spending money with your cards you begin to develop a history. This record sticks with you throughout your life and governs the financial scenario.

Important Checklist for credit score:

Make sure you are aware of your financial standing.
Keep an eye out for blemishes on your credit reports.
Obtain a copy of your credit report from different credit bureaus each year.

The higher credit score you attain will result is low-interest loans. Also, you will be helped in getting all kinds of interests to decrease. Similarly, your credit history is of importance when you decide to move into a new job or an apartment.
Whereas, if you have fallen short of these payments, you will get a bad credit score. This will result in a denial from loans, jobs and other important things that involve money.

Right Credit Card Use:

Credit cards have become an integral part of our lives. For some, credit cards are a fall safe, on which they rely for major purchases. While others rely heavily on them for carrying out their day-to-day transactions.
My question for you is, how many credit cards do you have? It is said in reports that an average American consumer has an average of three credit cards. Learning how to manage these cards is important, as they will either be helpful to you or destroy your credit score.

Choosing the Right Card:

There are many credit cards that require a minimum credit score to be met for approval. The higher your score is, the more discounts you will get on your cards. Students are qualified for special rates. The key is to pay attention to different offers made by companies that are offering these cards. You might find a deal best suited for your plan and lets you run things according to your demands.

What’s Your Plan for Credit Use?

It is important for you to keep a game plan in your mind. You should know that you are responsible for this card and your financial well-being. Make sure you mark important things related to your card on a calendar. This is to help you avoid any delay in payments. Also, make sure you don’t overspend on things that you don’t need. Moreover, ask questions like, what kinds of limits do I have? Will I be able to pay them off at the right time?

Paying Off Credit Card

Keeping track of what you owe is important. Make sure you know what you can afford and what you need to let go. Defining a long-term strategy and sticking to it will help you keep the credit card debt at a minimum. If things get out of your control, never be afraid to get some professional advice. Only investigate consolidation and settlement as a last resort.

Student Loans

Student loan debt is another major expense that has been added to the fixed expenses. There are almost no students who manage to settle their debt while still at school. The most daunting thing about these loans is that they are a huge sum of money and paying them off is tough.

Paying Attention to Loans:

Once you have signed for the loan, make sure you know when the first payment is due. Mark that date on the calendar and start figuring out ways to save enough money to meet the first payment amount. This might be daunting at first, but you will have to be brave. Also, you must keep in mind that paying off this loan will need some extra hours to be put in. You will have to work on weekends or even on holidays to make both ends meet as a student.

DO keep in mind when your grace period ends.
DO keep in mind different ways to save money.
DON’T miss your first payment because you forgot to mark your calendar.
DON’T take thing for granted.

Staying in Control:
You will have time for repayment once you graduate out of college. The Federal government allows you to build up finances before you start paying off your debts in large monthly installments. You can also decrease the capital by making payments that are greater than the minimum that is due.

DO make payments that are greater than minimum due.
DON’T let payments slide or miss any deadlines.

When Repayment Isn’t Possible:
During certain seasons of life, your income may be severely limited and affording student loan payments just isn’t possible. Fortunately, loan services are aware that situations like this occur and have precautions in place to help students get through these difficult times. Qualifying circumstances, like unemployment or health problems, can make you eligible for deferment or forbearance, which allow you to temporarily postpone or reduce payments. Contact your loan services to find out your options. If you just ignore loan bills, your account may receive delinquency or default status.
Do’s & Don’ts

DO communicate with lenders if you are unable to make payments.
DON’T ignore student loans when you’re struggling financially.

Real Estate

Real estate is the best way to attain financial stability. Owing a property not only helps build equity but also develops a sense of pride. It is termed as the best long-term investment one can make.
Buying a home is the biggest purchase some people will ever make in their lives. There are so many reasons which prevent people from owning a property. It is important that before you sign a mortgage, you must make sure that you have calculated all the expenses and put aside some of your savings for later use. Owning a real estate comes with many taxes, so you must have enough to carry on about your life without having to worry about your day-to-day financial dealings.
It is important for you to know what a foreclosure is. When a borrower is unable to pay their mortgage payments, the lender is legally allowed to take back possession of their property. In this scenario, a short sale takes place where the profits are less than debt remaining on the mortgage.
This can also be viewed as an opportunity to buy a property at a discounted rate. There might be more paperwork and a lot of bank involvement, but it is worth the trouble. Make sure everything is inspected and make way for finances to do some renovations.

Business Finance

In today’s world, startups can be seen everywhere. You might want to start a business of your own down the road. For that, here are some facts about the small business world:

Every year more than 400,000 new business emerge (U.S. Census Bureau).
Small business are the ones that have less than 500 employees.

Top fastest growing sectors in 2014:

Electronic shopping and mail-order houses
Software publishers
Computer systems design and related services

Retirement

Saving for retirement is the best thing to do. With an increase in average lifespan, there is a need to save more to survive for the longer run. People are willing to work longer than they used to save more for their retirement.
People who want to add security to their retirement funds go for annuities, which can be purchased. These annuities are offered by insurance companies. Here are some advantages of these annuities:

Your principal investment grows over time.
At taxes get deferred until the investments you made start paying out.
The taxes are deducted on annual distribution.
Annuity contracts can be sold for money.