Are you money savvy? Do you have the know-how to make smart, savvy, informed decisions about money and finances?
Knowledge is power. The more you know about the smart way to approach money matters, the more power you have over your finances and future. From taxes, loans and credit scores, all the way to investments and retirement there are so many aspects of money it’s hard to learn everything there is to know about personal finances. So here are ten elements I think all money savvy individuals have in their lives!
Know Your Net Income
A Money Savvy person knows the difference in his gross and net income. And he knows he can only count on his net income for his annual budget.
Net income is what you are left with after taxes, while gross income is the total paid out by your employers and other income streams. Counting on your gross income amount will get you into trouble. Wait until you actually get your tax return to make any plans for that money. And this ties right into the next point.
Spend Less Than You Earn
A Money Savvy person spends less than she earns. Period.
Spending as much as you earn, or worse, more money than you earn is a sure way into financial troubles. People who are financially smart keep their lifestyle at or below their income levels. Only by spending less than you earn can you save money for investments or retirement and thereby secure your financial future.
Acknowledge the Real Cost of Debt
A Money Savvy person knows that buying on credit is always more expensive than paying cash.
If and when a person with money smarts looks at a loan, he isn’t fooled by small interest rates and doesn’t seek out the lowest monthly payments. He knows to look at the total amount of interest he will have to pay to the creditor. If he’s financing $25,000 for a car at 3.11% he knows that he will be paying much more than 3.11%. If the credit only added 3.11% ($777.50), he’d pay a total of $25,777.50. But the savvy person knows he’ll end up paying $2,026 in interest alone to the creditor over the live of the loan, a $27,026 total. Which is 8.1% of the original $25,000, over double the 3.11% APR on the loan.
The money savvy person doesn’t just want to know how much the loan will cost him each month, he wants to know how much it will cost him total. Only then does he decide if he’s willing to make that purchase with a loan or wait until he can pay for it in full.
Want to know more on how to avoid and/or get out of debt? Check out these:
Have a Money Plan
A Money Savvy person has a plan.
Whether that is a three, five, ten, and twenty year income and career plan or financial check up and benchmarking once a year. A money savvy person plans ahead for her finances and is not afraid to confront them head on, she knows putting intentional forethought into her spending, savings, and earnings is the best way to create the financial future she wants. She’s not waiting on her next promotion or till she wins the lottery to make plans and take action for a better future for herself.
Save for Retirement
A Money Savvy person knows that one day, planned or unplanned, retirement will come.
One day, sooner or later, we all have to cut back or stop working entirely. A person who knows his income, has a plan, and thinks intentionally about his future will take action regarding his retirement. What that action is depends on the individual’s unique circumstances, and is part of a whole other conversation.
Make Informed Decisions
A Money Savvy person seeks information on a subject before making a decision.
A person who is smart with her money doesn’t follow trends, and doesn’t make large money or spending decisions without first doing some homework. She is intentional with her life. She gets information so she can take responsibility for her actions and be in control.
Be Continually Learning
A Money Savvy person is always learning and open to new ideas and methods.
One of the most universal habits of successful people in any area is that of constant learning. Wealthy and successful people take reading for self education very seriously. According to Tom Corley of Rich Habits, 85% of self-made millionaires read at least two books every month. A financially savvy person reads and educates himself on the areas of life he intends to improve.
Buy and Shop With Intention
A Money Savvy person is intentional with spending.
You will not find a money savvy person participating in “retail therapy” or buying “things” solely because they are on sale. This person knows the difference in treating herself and reckless spending. She can spend money on herself without guilt because it is an intentional allocation of her resources, i.e. spending money within her budget. She doesn’t lightly shop or buy without first considering if she has a better use for that money.
Don’t Be Afraid to Know the Truth
A Money Savvy person is not afraid to know the truth of his financial situation.
Ignoring a bad situation does nothing to improve it or make it go away. A person who is smart with his finances is not afraid to meet his challenges head on. He is not content with being blissfully ignorant of his life or the consequences of his actions. He will learn his exact financial standing, make an actionable plan to get to where he wants to be, and stick to that plan. Even if where he is today is not ideal, he will know where he stands, where he wants to be, and how he’s going to get from here to there.
A Money Savvy person is generous.
No matter where a person is on her financial and life journey, she knows there is always someone worse off whom she can help. She knows that what goes around comes around, and that being generous is important for her financial and spiritual health.
Bonus Tip: Save Off the Top
A Money Savvy person saves off the top of each paycheck.
Taking money for savings from the start, or top, not the “leftovers” of his paychecks is what a person who is increasing his wealth does. He will make saving money for future use, retirement, or investments a priority, not an afterthought.
What Money Savvy tip can you use in you life right now? Are there any that need to be added to the list? Let me know in the comments!