Money rules the world. You have to make money in order to acquire things that you desire. Do you have a tendency of spending money irresponsibly? Budgeting is an important skill to have so you have a good idea of where your money is going. The model that we’re going to follow is 50-30-20. When you first get money, 50% of it should go to your needs. Needs should include bills, things for childcare, car insurance, food, etc. After your needs, take 20% of the rest of your money and put it into savings. It is important to always take the time to pay yourself. You’re the one that made the money! Afterwards, the rest, which we’re going to assume is 30%, goes toward your wants. It’s also important to have money for yourself to spend on things you want–that’s self care! Sometimes the 50-30-20 model doesn’t work for people. Some people have more needs than others, so the model can look more like 60-20-20, 70-20-10, 80-10-10, whatever your needs are. Following a budgeting model will help you see where you’re spending your money and help you save money better.
Another part of financial literacy is understanding credit/credit scores. Credit is the system used to determine your ability (or inability) to pay for things back that you owe on time. The system then gives you a number (based on a number of factors that we’ll dive into) and that number determines whether or not you can be trusted to pay things back. The range of credit scores is 300-850. 300 being the lowest score you can have and 850 being the highest score you can have. The ranges are as follows: 350-580 is poor credit, 580-669 is fair credit, 670-739 is good credit, 740-799 is very good credit, and 800-850 is excellent credit. Now let’s talk about how they determine your score. 35% of your score is based on your payment history, so just seeing if you pay your credit accounts on time. Missing payments, having an account sent to collections, or filing bankruptcy hurts your credit score. 30% of your credit score is based on how much you owe. How many accounts you have that have balances, how much you owe, and the amount that you’ve spent in relation to your credit limit all play a factor in that part of your score. 15% is determined by your length of credit history, which is the average age of all your accounts and the age of your oldest and newest accounts. The older your accounts, the better. 10% is determined by the types of accounts that you have, whether it’s credit cards, loans, etc. Showing that you can handle having multiple kinds of accounts. Lastly, 10% of your score is determined by new credit, which is just any new accounts that you open. Now that we broke that down, you should be able to better understand your credit score. Budgeting and understanding credit will help you not only see where your money is going, but it’ll help you see your faults and strengths when it comes to your spending.
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