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| Photo by Hamed Taha on Unsplash |
According to a new hot-off-the-press Pew Research study, only about half of Americans think they know a lot about personal finances. The other half? Not looking so good. So which half are you in?
Let’s go over five money skills that you should 100% know how to do. We’ll also use the data from this research study to see how your money knowledge stacks up with the rest of America.
Finding Your Credit Report
According to this survey from Pew Research, 75% of US adults say they are extremely or very confident that they have enough knowledge and information to find their credit report. That’s not bad—but it can be better because finding your credit report is super easy.
A credit report is a statement that has detailed information about the money you borrowed in the past and the present. It’s kind of like a report card that you used to get in school, except instead of having to show it to your parents, you have to show it to potential lenders, landlords, and sometimes even your employers. This helps them determine how risky you are—aka the likelihood that you’ll be able to pay your bills on time and whether you have debt or not.
It’s a good idea to pull this at least once a year from all three credit bureaus to make sure all the information is correct and that there’s no fraud involved. The best and fastest way to do it is by going to annualcreditreport.com and requesting your free reports. You’ll fill out a form, pick the reports you want, and review them online. You will need to answer some personal questions to prove it’s you, but you should be fine as long as you’re not somebody else.
Fun fact: In the old days, you could get a free credit report from each of the major credit bureaus once a year, but now it’s once a week—which is cool but also a bit much.
Creating a Monthly Budget
59% of US adults say they are extremely or very confident that they have enough knowledge and information to create a monthly budget. Creating a budget is not that difficult—the hard part is sticking to it. But when it done right, it’s a game-changer for everyone.
This is a really important money skill because if you want to win with money, you’ve got to be intentional with money. The way to do that is with a monthly budget.
Quick Refresher on Budgeting:
Step 1: List your income. This includes all the money you have coming in for the month—job, side hustles, social security, etc.
Step 2: List your expenses. Now that you know what’s coming in, make a plan for the money going out. Include everything like bills, groceries, gas, and eggs.
Step 3: Subtract expenses from income. This number should equal zero because we are creating a zero-based budget. This method gives every dollar a job. So if you take home $5,000 in a given month, everything that you give, save, or spend should add up to $5,000—not a penny more.
Step 4: Track your transactions. Apps like EveryDollar can help with budgeting and tracking expenses. It’s a free download, easy to use, and does the math for you.
These four steps are repeated every month.
Creating a Plan to Pay Off Debt
57% of US adults say they are extremely or very confident that they have enough knowledge and information to create a plan to pay off debt. Debt is not something you want hanging around—it robs you of your ability to build wealth.
The best way to pay off your debt is the debt snowball method:
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Line up your debt from littlest to biggest, regardless of the interest rate.
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Attack the smallest debt first while continuing to pay minimum payments on the rest.
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Once the smallest debt is gone, take the payment that’s now freed up and apply it to the next smallest debt.
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Repeat the process until all debts are gone.
Momentum, not math, will get you out of debt. The debt snowball method gives you quick wins psychologically to keep you motivated.
Saving Money
56% of US adults say they are extremely or very confident that they have enough knowledge and information to save money. This is more of a behavior thing than a knowledge thing. Everyone knows how to save—just don’t spend it.
To get ahead with money, make saving a priority. Save up a fully funded emergency fund because financial surprises happen. Your AC could go out, a meteorite could puncture your roof, or you could get fired unexpectedly.
It’s wise to have 3 to 6 months’ worth of expenses tucked away in a high-yield savings account—easily accessible and earning interest. This emergency fund acts as a safety net between you and costly catastrophes.
Creating an Investment Plan
27% of US adults say they are extremely or very confident they have enough knowledge and information to create an investment plan. This is not a great number—but it’s fixable.
Investing doesn’t have to be complicated. In fact, if you’re doing it right, it should be pretty boring. All you need are basic retirement accounts like a 401(k) or Roth IRA.
In the largest millionaire study ever done, 8 out of 10 net worth millionaires said their retirement plan was the key to their financial success. Start by putting 15% of your income into these tax-advantaged accounts every month and let compound growth do its job.
But only start investing when you’re financially ready—meaning all your consumer debt is paid off and you have a fully funded emergency fund. This is the financial foundation you need to build wealth with confidence.
This is how many have become net worth millionaires—investing consistently into their 401(k), paying off their home, and building wealth steadily over time.
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