4 financial skills I wish I learned in high school
Finance 101
In high school, we learned about everything from the quadratic equation to annotated bibliographies, however one thing was missing: financial ed. While history, literature and math are all important subjects, surely there was room in there for a few financial skills that would prove important later in adult life. Because you may never use the Pythagorean Theorem again, but these four practical financial skills will come in handy for the rest of your life.
1. Manage debt efficiently
Nobody told you back then that debt is a fact of life, let alone how to keep it under control. First, you need to learn the difference between good debt and bad debt. Good debt has the potential to increase a person’s net worth—like borrowing money to buy real estate, education or starting a small business. Bad debt is when the money borrowed is used to purchase goods that depreciate in value after purchase, like cars, clothing and virtually anything purchased with a credit card.
Start by tracking your spending and taking a hard look at what you’re buying. Before your bad debt spirals out of control, reduce it. A popular way to do that is the Snowball Method. Make a list of all your debts, from the smallest to the largest. Then make the largest payment you can on the smallest debt, while paying only the minimum payment on the rest of them. Repeat this month after month until each debt is paid in full.
2. Learn how to multiply your money
It’s not magic, but it means you need to understand compound interest. Even back in high school you earned interest on your first savings account. What you might not have clearly understood is that at the end of the month that interest gets added to your principal, which means the next month you’ll earn interest on that new (larger) principal. It’s why putting money away for the long term adds up. And the earlier you can start doing that, the more it will grow.
3. Learn to read the fine print
Checking accounts, student loans and maybe even credit cards, were some of the first financial products you came across in high school. But don’t you wish you had known back then what to look out for when signing up?
When it comes to borrowing money, whether in the form of a credit card, a student loan or even a mortgage, the key is to take a deep look at interest rates.
For credit cards, you should compare annual percentage yield (APYs) before you apply and find a card that rewards you for things you normally do anyway, like getting travel points for buying groceries or cash back on dining.
When you apply for a mortgage, consider your options. The loan term, whether it’s a 15-year or a 30-year mortgage, determines your monthly payments but it also determines how much more you pay back in interest over the years. Also consider the type of interest rates: fixed or adjustable. With an adjustable rate, your monthly payment may change month after month, so many people opt for a fixed rate.
It’s not too late for you if you’re carrying student loans with terms that don’t work for you. Look into refinancing your student loans. It can help you get a new loan term and a better interest rate to help you pay it off faster.
4. Protect your credit history
The things you do financially can stay with you for a long time. So, think twice when signing up for multiple credit cards and try not to miss a payment. It’s important to keep your credit score in check. Pay off debt and don’t close credit cards, even if they are unused. As long as they don’t come with an annual fee, having multiple cards is a no-cost way to show that you have available credit, which can boost your score. To be safe, always monitor your score and dispute any inaccuracies you find.
Even if you didn’t learn these skills in high school, it’s never too late to use them. And there’s no need for you to go it alone. Like a favorite teacher, a Financial Advisor can offer you invaluable guidance on everything from getting a handle on debt to building a nest egg and creating an overall plan to reach your financial goals. No kissing up required.
Advisory services offered through John Hancock Personal Financial Services, LLC, an SEC Registered Investment Adviser. Boston, MA 02116. 888-955-5432.
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