Personal finance for beginners: what you need to know to build wealth

Author: Rob Lenihan

Source: The Street

People who struggle with financial literacy are nearly three times as likely to be constrained by debt; three times more likely to be financially fragile; and more than four times as likely to lack emergency savings sufficient to cover one month of living expenses, according to a 2023 TIAA Institute-GFLEC Personal Finance Index. 

In addition, employed adults with very low financial literacy were more than four times as likely to stop saving for retirement in 2022 because of inflation’s impact on their finances.

It's no wonder so many people's financial foundations are rocky. Most haven't had the benefit of learning about personal finance in school or at home. They're on their own when it comes to lessons on debt management, investing, and planning for the future.

Fortunately, you can take matters into your own hands. The basics of personal finance aren’t all that complicated. It’s about taking stock of what you have and where you want to go -- and seeking help when you need it. 

If you can pay attention to these areas of your financial life, you’re off to a great start.

The 3 basics of personal finance

In order to be financially literate, you should become familiar with three basic concepts.

1. Earn: Before you do anything with your money, it's vitally important to know how much you're bringing in. This includes money earned from a steady paycheck, self-employment income, or a side hustle.

2. Spend: You also need to know how much of your income is going out the door for fixed expenses like housing and healthcare and variable costs like entertainment and food. You want to make certain you're spending less than you're earning and accounting for non-negotiable expenses like taxes. A budget, or a more flexible spending plan, will allow you to allocate your income and determine the best way to spend your money. 

3. Save: Author Frank Sonnenberg said, "Save when you don't need it and it'll be there when you do." This includes saving for emergencies, short-term goals, such as vacations, mid-term goals like buying a car, and -- the big one -- retirement. How much of your income you should be saving depends on your current lifestyle and your goals.

How to start learning about personal finance

You may want to take additional steps to improve your financial literacy. Here are some resources to consider: 

• Talk to a professional: A financial advisor can help you take stock of your income and debts, and make a plan to achieve specific goals.
• Take an online course: There are a number of free financial literacy courses available online that are taught by vetted professionals.
• Pick up a book: There’s no shortage of personal finance books that cover such topics as stock trading, paying off debt, and planning for retirement.  

Prefer to learn about powerful investing concepts in video form? Tune into Money Gains, a video series teaching you how to make the most of your money.

This article was written by Rob Lenihan from The Street and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.