The Newbie's Guide to Managing Money

October 3, 2017

When it comes to money, it's hard to not live in a constant stressful state of mind. Where are you spending your money between paychecks? What happens if there's a sudden unexpected expense, and you have no backup plan?

According to data from the U.S. Census Bureau and the Federal Reserve, the average American household has $16,425 in credit card debt, and that number is growing rapidly each and every year.

Although you might feel underwater, you're in luck: debt is not a new concept, and it's been around for years - so people have had plenty of time to come up with ways to manage and track their money. Some ideas are tried and true - coupons have been around since the late 1800s and continue to gain popularity in digital formats, like Target's Cartwheel app. With the introduction of the 401K 40 years ago, more Americans became incentivized to put their money away - and keep it there. In today's digital age, it is easier than ever to sign up for a budget tracker or an investing software.

But in this sea of knowledge, where should you begin? Start simple with our best guide to managing money for beginners.

#1: BUDGET, BUDGET, BUDGET

You're in a rush to get to work in the morning, and think a few hours ahead to lunch. Should you take the time to make a quick sandwich, or grab something to-go during your midday hour?

Let's break this down. Assembling a sandwich takes less than 10 minutes (given that you're not getting extra fancy with a panini press), and costs less than $4 in ingredients if you're buying in bulk and meal prepping.

Buying a healthy lunch at a restaurant will cost you around $10.

Becoming a financially successful person takes more than just a simple budget, but once you build one healthy habit, it's easier to add on new ones without becoming overwhelmed.

#2: PRIORITIZE YOUR DEBT REPAYMENT

Not all debt is created equal. No one likes having student loans on their books, and you may be in a rush to get rid of them, but it's best to prioritize your debt based off of the interest rates and APRs that you're being charged.

Let's say you've taken out two student loans: one for $15,000, and the other for $10,000. It would make sense to pay off the $10,000 loan first, because it'll for a smaller amount, and it will come off of your books first. This is known as the Debt Snowball Approach, and it's what many people recommend. But what if the two loans have drastically different APRS? If the cost of borrowing the $10,000 loan is much lower than the $15,000 loan, you should work towards paying off the $15,000 loan first. This concept is known as the Debt Avalanche. From a financial standpoint, the Debt Avalanche approach will cost you less in the long run.

#3: RETIREMENT MATTERS

You'd be surprised at the amount of people who are offered a 401K as part of their benefits package, but do not elect to sign up. A 401K is a great way to save up for retirement, for two main reasons: 1. Your employer contributes to the account on your behalf, often matching the amount you put in (up to a percentage.) 2. Once you put money into your 401k, it's stuck there: withdrawing (or "cashing out") prior to your retirement your 401k comes with a hefty fine. Talk about delayed gratification!

If a 401k is not available to you, consider a Roth IRA, which works in a similar way. Set up an automatic withdraw every month, and forget about it.

#4: IT PAYS TO BE PICKY

Opening your mailbox may seem a bit like Christmas: envelope after envelope after envelope, all full of credit card offers. But selecting a credit card is more than just looking at the perks - it's an important decision that will impact the amount you pay to borrow money.

Beware of teaser rates that offer you a low APR. Chances are you won't obtain that APR unless you have a pristine credit score. Always compare and contrast your credit card offers before taking the plunge.

Some quick things to look for when applying for a credit card:

Cost of financing (interest rate and APR): Should be as low as possible
Annual fees: Is the company charging you $150 a month for administrative fees? If so, consider a different card, unless there are some perks that make up for that $150 (such as travel credit or free credit monitoring)
International fees: If you're a traveler, or looking to become one, look for a card that won't charge you an extra percentage for overseas purchases.

Some quick things to look for when applying for a loan:

Prepayment penalties: If you pay your loan off in full, will there be an extra fee?
Teaser rates: Try to find out the exact cost of your loan (including interest rate and APR) before you apply to avoid an unnecessary credit check (as well as predatory financing.) If the financer makes it difficult for you to find out this information, that's a red flag in itself.
Grace period: Some financers offer a grace period between your graduation and the full repayment period. If you're going to be hunting for a job (and a paycheck!) this is a great option.

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#5: BECOME BEST FRIENDS WITH YOUR CREDIT SCORE

Don't let those three digits intimidate you. If you're applying for credit, renting a home, or just looking to become financially savvy, you need to become familiar with your credit score, and the factors that impact it (both positively and negatively.)

You're entitled to one free credit report per year through any of the large credit reporting bureaus (Experian, Equifax, TransUnion, and Innovis.) In addition, if you're signed up with a national bank or credit card, chances are you're able to get a free report through their services.

You can also perform a "soft" credit check to get a general idea of where your credit score lies by visiting Credit Karma.