💰Personal Financial Management Unit 1 – Personal Finance Basics

What's Personal Finance?

• Personal finance involves managing your money to achieve your financial goals
• Encompasses earning, spending, saving, investing, and protecting your money
• Requires understanding your income sources (salary, investments, side hustles)
• Involves creating a budget to track and control your expenses (housing, food, transportation)
• Includes saving for short-term and long-term goals (emergency fund, retirement)
  • Aim to save at least 10-20% of your income
• Involves managing debt responsibly (credit cards, student loans, mortgages)
• Includes protecting your assets with insurance (health, auto, life)
• Requires setting financial goals and creating a plan to achieve them

Money Mindset Matters

• Your beliefs and attitudes about money shape your financial decisions
• Developing a positive money mindset is crucial for financial success
• Recognize and overcome limiting beliefs (money is scarce, I'm bad with money)
• Embrace an abundance mindset (there are always opportunities to earn and grow wealth)
• Practice gratitude for what you have and focus on progress, not perfection
• Educate yourself about personal finance to build confidence and make informed decisions
  • Read books, listen to podcasts, attend workshops
• Surround yourself with people who have a healthy relationship with money
• Believe in your ability to improve your financial situation and take action

Budgeting Basics

• A budget is a plan for how you will allocate your income to expenses and savings
• Helps you track your spending, identify areas for improvement, and reach your financial goals
• Start by listing your monthly income from all sources (salary, investments, side hustles)
• List your fixed expenses (rent/mortgage, utilities, insurance) and variable expenses (groceries, entertainment)
• Allocate your income to cover expenses and savings goals
  • Use the 50/30/20 rule as a guideline (50% needs, 30% wants, 20% savings)
• Track your spending throughout the month to ensure you're sticking to your budget
• Review and adjust your budget regularly to account for changes in income or expenses
• Consider using budgeting apps or spreadsheets to simplify the process (Mint, YNAB)

Saving Strategies

• Saving is setting aside money for future goals or unexpected expenses
• Pay yourself first by automating savings before spending
• Build an emergency fund to cover 3-6 months of expenses
  • Helps you avoid debt in case of job loss, medical emergencies, or unexpected repairs
• Save for short-term goals (vacation, down payment on a car) in a high-yield savings account
• Save for long-term goals (retirement, child's education) in investment accounts (401k, IRA, 529 plan)
• Take advantage of employer-sponsored retirement plans and company matches
• Look for ways to reduce expenses and increase your savings rate (cook at home, cancel unused subscriptions)
• Consider a side hustle or freelance work to boost your income and savings

Debt Management

• Debt is money you owe to lenders, often with interest (credit cards, student loans, mortgages)
• Understand the difference between good debt (investments in education, real estate) and bad debt (high-interest consumer debt)
• Prioritize paying off high-interest debt (credit cards) to save money on interest charges
• Consider the debt snowball method (paying off smallest debts first) or debt avalanche method (paying off highest-interest debts first)
• Negotiate with lenders for lower interest rates or payment plans if needed
• Avoid taking on new debt while paying off existing debt
• Use balance transfer credit cards or personal loans to consolidate debt at lower interest rates
• Create a debt repayment plan and stick to it, celebrating milestones along the way

Banking Essentials

• Banking involves managing your money with financial institutions (checking accounts, savings accounts)
• Shop around for banks with low fees, high interest rates, and convenient features (online banking, mobile apps)
• Understand the difference between checking accounts (for everyday transactions) and savings accounts (for storing money and earning interest)
• Look for accounts with no minimum balance requirements, no monthly maintenance fees, and ATM fee reimbursements
• Consider online banks or credit unions for higher interest rates and lower fees
• Set up direct deposit for your paychecks to simplify your finances
• Use online bill pay or autopay to ensure bills are paid on time
• Monitor your accounts regularly for fraudulent activity and report any suspicious transactions immediately

Credit Score Secrets

• Your credit score is a number that represents your creditworthiness to lenders (ranges from 300-850)
• Higher credit scores can lead to better loan terms, lower interest rates, and easier approval for credit
• Payment history (35%), credit utilization (30%), length of credit history (15%), credit mix (10%), and new credit inquiries (10%) are the factors that determine your credit score
• Pay all bills on time, as late payments can significantly damage your credit score
• Keep your credit utilization (amount of credit used compared to credit limits) below 30%
• Avoid applying for new credit too frequently, as hard inquiries can temporarily lower your score
• Monitor your credit report regularly for errors or signs of identity theft (use AnnualCreditReport.com for free reports)
• Consider using a secured credit card or becoming an authorized user on someone else's account to build credit

Financial Goal Setting

• Setting financial goals helps you prioritize your spending and saving decisions
• Start by defining your short-term (1 year), mid-term (1-5 years), and long-term (5+ years) goals
  • Examples: build emergency fund, pay off debt, save for down payment on a house, retire comfortably
• Make your goals SMART: Specific, Measurable, Achievable, Relevant, and Time-bound
• Break down larger goals into smaller, actionable steps
• Write down your goals and review them regularly to stay motivated
• Create a financial plan that outlines how you will allocate your income to reach your goals
• Automate your savings and investments to make progress towards your goals consistently
• Celebrate your progress and make adjustments to your plan as needed
• Seek guidance from a financial advisor or mentor for personalized advice and accountability