Financial Skills Everyone Needs

With certain financial skills under your belt, it’s usually easier to accomplish your goals. With them, you shouldn't have to worry as much about paying the bills, and you're less likely to need debt relief.

Here are four key financial skills worth developing.

1. Living Within Your Means

“Living within your means” is a way of saying you live just on the money you have coming in, and you don’t spend more than you make.

If you can't live within your means, you fall behind and end up borrowing to make up the difference. This often means you pay interest on purchases, and that makes them more expensive in the end. It could also put you at risk of needing credit card debt relief. 

To live on less than what you make, start with a budget plan. You can set spending limits on things like housing, groceries, transportation, and entertainment. 

If you can get your total expenses to add up to less than you earn, you’re “within your means.” And that means you could save money for your future. It often makes life a lot less stressful, since you don't need to worry as much about paying the bills.

2. Knowing the Difference Between Needs and Wants 

When you have a true need, you have to put your money toward it. You may even have to borrow to cover it if you have no other options and no emergency fund. For example, you need food and medical care, so you must find a way to pay for them.  

A want is something it's nice to have, but not something you must have. If there's something you want but can't afford to pay cash for, you usually shouldn't buy it. 

It can be hard to know the difference between needs and wants, because sometimes there's crossover. For example, you may need a car to get to work, but you may want a fancy luxury convertible. In this case, you could borrow to buy a basic car, but you probably shouldn’t borrow extra to buy the luxury convertible. 

To decide if something is a need or a want, consider the consequences if you don't buy it. If your health, safety, or long-term financial security would be damaged without it, then it's likely a need. If you could get by without something without causing harm, it's probably a want.

There's nothing wrong with buying yourself things you want sometimes, but limit how much you spend on wants, and budget for them to ensure you don't compromise the essentials to buy items that aren't really necessary.

3. Waiting for Things You Want

Waiting for the things you want is a key financial skill that’s closely related to living within your means, and knowing the difference between needs and wants.

If there's something big you're hoping to buy, it can be really tempting to borrow for it. That’s especially true when a lot of companies promote Buy Now, Pay Later plans, and even promise 0% financing. 

In reality, when you commit to financing something, even at 0%, you tie up future income. You're effectively making it harder to live within your means in the future. Instead of handicapping your future self by tying up income you haven't made yet, wait and save. 

If you want to take a big trip, for example, figure out how much the vacation will cost you. Instead of putting it on a credit card, save each month so you can cover the cost of the trip without borrowing. While it may mean you can't go on that vacation for six months or a year, think about how much more you'll enjoy it when you aren't worried about paying off the trip after you get home. 

To develop this skill, shift your mindset. Instead of focusing on how long it may take to save up, enjoy the process of saving, anticipating, and knowing you can pay for it upfront. 

 4. Understanding How to Save and Invest

Finally, it's helpful to know how to save and invest, understanding details like how much to save and what kind of accounts to put your money into.

A good rule of thumb is to save around 20% of your income if you can. If you need to work up to that, that's okay—it's better to save a little than to save nothing. Even if you can only save $5 or $10 a month when you start, it's worth doing. 

When you save money that you might use within a year or two, it can go into a high-yield savings account. That way you can earn some interest and keep the money separate from your spending money. But since it’s a savings account, you're minimizing your risks.

If you're saving for something more than five years away, investing could be the right path. If your employer offers a 401(k) plan—and especially if your employer offers you matching funds—consider saving for retirement through the plan. If your employer doesn't provide a 401(k), you could save with an Individual Retirement Account (IRA). Both accounts give you certain tax breaks. 

If you need the money sooner than retirement, consider using a taxable brokerage account. Or, if you're using the money for healthcare, you may be eligible for a Health Savings Account (HSA). Other specialized accounts exist (for college savings and other purposes).

When you invest, you don't need to learn a ton about stocks to succeed. You can find a lot of great information from reliable sources online that could help you make the right investment choices. It can also be smart to seek the help of a financial advisor.

If you learn these basic investing details and financial skills, you could get started setting yourself up for a secure future.