As a high school student, you’re forced to think about your future a lot. You’re considering which school to attend, what your career will look like, and where you want to live, plus a bunch of other deliberations you don’t fully understand yet.
Stress about money and financial success later in life can certainly add to this anxiety. However, you can avoid some of the common obstacles and prepare yourself to make better financial decisions by exploring some of the professional insights below.
Facts: Financial Literacy Basics
Before you dive into the intricate world of personal finances, you need to grasp the meanings behind some basic vocabulary.
Know these glossary terms.
The following definitions provide you with the background information you’ll need to manage your own money.
- Bonds: A form of debt security that represents a loan made by an investor to a borrower (usually a government or corporation)
- Depreciation: As an asset loses its value over time, the cost depreciates; a depreciating asset decreases in value over its useful life
- Dividends: A set sum of money paid regularly to shareholders or investors
- Down payment: The amount of money a borrower initially pays to cover a fraction of their total loan amount
- Interest rates: The percentage of the loan amount that the lender charges the borrower for servicing the loan
- Liquidity: The degree to which assets can be accessed and distributed by a bank; essentially, how quickly an asset can be converted into ready cash without affecting its market price
- Mutual funds: A type of financial vehicle that pools assets from shareholders to provide access to a professionally managed portfolio
- Passive income: Minimally laborious earnings that aren’t sourced from an employer or contractor
- Principal payment: The amount the borrower pays regularly to cover the price of the loan, not including the interest amount
- Stock market: The stock exchange exists to buy, sell, and trade securities or assets, such as bonds, stocks, and other investment tools
Understand good debt vs. bad debt.
Another crucial topic to understand is the difference between “good” debt and “bad” debt. Generally speaking, you should avoid accumulating significant debts, especially while you’re young. However, economists frequently classify “good” debts as those which can benefit long-term financial health—such as student loans, which provide you with the asset of advanced education—and “bad” debts as those that are likely to hurt your finances in the long run, such as racking up credit card debt.
Hacks: Wealth-Building Strategies for Long-Term Success
When you spend and save money, how do you know you’re doing so in a way that supports your financial future? Of course, building wealth takes time, but by starting early and following these tips, you can accumulate savings in no time.
1. Automate financial obligations.
From savings to bill pay, you should do your best to automate important financial imperatives. This way, you won’t have to remember to move money around or take care of an outstanding bill. Plus, you can avoid late fees.
One popular method of savings automation is purchase round-up investments, which invest the spare change from a transaction to gradually build up savings. For example, if you paid $91.65 for groceries, the software would round up the total to $92 and invest the remaining 35 cents. FSCB’s Pocket Change program institutes a similar model, helping you save while you spend without lifting a finger.
2. Break down expenditures.
The ability to budget is perhaps the most vital skill in building significant wealth. To understand where to put your money, you need an accurate idea of where it’s currently being spent and how to reallocate it properly if necessary. With a detailed budget outlined, you can avoid overspending and identify where to cut expenses. FSCB recommends using money management apps to set your budget and track spending.
3. Set clear, attainable financial goals.
Setting realistic, specific financial goals makes it easier to build wealth responsibly over time. Timely, sensible objectives, such as to save $1,000 by the end of the year, are surely more productive and simpler to work toward than aiming for a general target, such as to save more money than last year. Working to create a savings plan is often helpful for attaining these goals.
4. Diversify your investment portfolio.
This is the economic equivalent of not putting all your eggs in one basket. You will inevitably collect both good debts and bad debts as you continue to spend and save. Investments—particularly appreciating investments that are typically considered good debts—should consist of diverse assets across various investment types. Maintaining a mix of assets—real estate, stocks, and so on—that move in different directions reduces risk and leads to higher returns.
5. Protect your assets with insurance.
To safeguard your accumulated wealth, asset protection is key, especially with a diverse investment portfolio. Numerous insurance plans exist for various assets, such as homeowners insurance, long-term disability insurance, life insurance, and car insurance. As your own personal form of insurance, try to collect an emergency fund in case any urgent expenses suddenly arise, such as your car breaks down or your cat needs surgery.
6. Partner with a knowledgeable advisor.
All too often, seedy salespeople and financial entities will take advantage of young account holders in an attempt to get more money from them. Financial literacy also means recognizing the difference between reputable experts and greedy lenders. Our team of advisors at FSCB, for example, always keeps your best interests in mind to adequately customize your financial plans.
Impacts: The Importance of Financial Literacy
In essence, building wealth is a simple three-step process:
- Make money.
- Save money.
- Invest money.
However, students who are unsure how to approach this process with competence will eventually experience financial stress. The budgeting strategies you choose to employ will ultimately determine your level of financial preparedness as your monetary needs change throughout your life.
Proper budgeting and financial literacy are the foundation of effective wealth building, both now and in the future. Build a solid foundation by starting your savings early and learning effective tactics for maintaining financial stability.
Advice for Achieving Your Financial Goals
When you start to think about the future of your finances, you might feel a bit overwhelmed. With so much to consider, it helps to have someone in your corner that’s prepared with the guidance you need to make smart long-term choices about money. If you start small, start early, and start with a reliable financial education, you can start building wealth in no time.
Still struggling to spend, save, and invest smarter? Check out A Complete Guide to Budgeting for expert insights into managing your money responsibly at any age.