What you should have learned in school but probably didn’t

There are many subjects taught to us while growing up and in school. Unfortunately, personal finance and proper money management are not one of them. I have worked in the financial services industry for many years now and it still astounds me at the lack of general regarding even a simple savings account. More and more people are not saving or planning for retirement because they lack fundamental budgeting skills or the understanding of how money works, so they push it off until usually it’s too late. Here are some of the necessary skills that I wish were taught is schools today.

1. How to balance a checkbook and maintain a budget. A lot of people especially younger people have done away with the traditional checkbook these days, but that doesn’t mean that the same principals and system can’t still work today. Maintaining your checkbook and budgeting go hand in hand today. You need to understand your income and expenses and what is flowing in and out of your account so that you can properly adjust and don’t have an unexpected surprise in the form of an overdraft fee or return item fee. This can also help you understand where you may be spending unnecessary funds that could have otherwise been invested or used to pay down other debts.
2. Compound interest and the massive effect it can have on your finances and ability to build wealth. Putting even small amounts into a retirement or investment account early on can lead to huge gains later down the road. If you started at 18 putting just $100 per month into an account that averaged an 8% return, you would have $687,324.19 at 67. That same $100 earning the same 8% if invested just 10 years later at 28 would yield a return of $309,667.82 at 67. That is a difference of $377,656.37 or more then double by waiting to invest by 10 years. The point is start early and often. It doesn’t have to be $100 every month. Maybe you start out with just $25 and as you grow in your career you steadily increase the amount but remember the earlier the better.
3. How to build credit. So many aspects of your life will depend on your credit score and your credit worthiness and so many people don’t know how to build or even begin to establish credit. Everything from the interest you pay on your car and house to even possibly a job opportunity will depend on your credit worthiness. One of the easiest ways to establish and build credit is to utilize a secured credit card. This works just like a debit card, but you prepay the credit card company and in exchange you get to use the card like any credit card with the limit set at your prepayment amount. The benefit is that the credit card company will report this to the credit bureaus thus building your credit score. With good credit so many doors will open for you, but with bad credit it can be very difficult to wedge the door open enough to accomplish any financial goals you have.
4. Finally, how credit cards, interest and debt work. Most people who are in credit card debt don’t realize just how hard it can be to get out from under that credit card or how easy it is to lose control of your credit cards and debt. It is always smarter to avoid debt if possible but in cases where it can’t be avoided having some general knowledge can come in handy. Have the knowledge to understand how repayment works or how a few percentage points more of interest can drastically affect your ability to pay that debt off as quick as possible. The flip side to this is also understanding that not all debt is bad and that when leveraged properly it can lift you to new heights. Utilizing credit available to you in order to start or grow a business is a great example of this. If you can borrow $10,000 today to increase your monthly revenue by $900 per month then with 1 year you would be able to repay that debt and then continue to bring that extra $900 in per month, thus allowing you to continue to grow the business. Another great example of this is leverage real estate and mortgages to increase you cash flow. Why buy a house for $100,000 and cash flow $1000 per month when you could but gown $25,000 on 4 houses and finance the rest and cash flow $1500 per month.

It is time we start educating people on what is really important and set them up for success instead of forced dependability.