Are You Financially Literate? Spending Edition
What is financial literacy? By definition, if you’re financially literate, you’re able to understand proper financial management skills and apply them accordingly. This means that you’re not only able to understand financial terms but the concepts behind them, and in a way that allows you to effectively plan your financial life, manage debt, and calculate your savings.
In order to become financially literate, you’ll need to first have a basic understanding of financial terms. Then, you’ll need to know how to implement them in your daily financial life. Here are the top financial terms you need to know when it comes to spending money.
Not sure how to prioritize spending when it comes to debt? Need to figure out what in the world zero-based budgeting is? We’ve got the answers for you.
Where Should You Save Your Spending Money?
The first lesson in financial literacy as it relates to spending is in understanding where you should be saving your spending money. Here, it helps to understand the difference between a savings account and a checking account.
A checking account is a deposit account at a bank that allows you to deposit and withdraw cash, and it usually doesn’t earn interest; a savings account is also a deposit account at a financial institution, but unlike a checking account, savings accounts are interest-bearing.
Where should you be putting your spending money then? In your checking account! Your checking account is tied to your debit card, which is what you’ll use to swipe and pay for things while out and about or use to withdraw cash at an ATM.
Fixed Expenses vs. Variable Expenses
Spending isn’t always fun; sometimes, you have to pay for bills and other responsibilities such as medical costs, loans, and even unexpected emergencies. To be financially literate when it comes to spending, you need to know what you’re spending.
Here, we have two different types of expenses:
- Fixed Expenses: These costs don’t change from month to month. Likely, this includes your rent or mortgage payments, insurance premiums, subscriptions, and even student loan payments.
- Variable Expenses: These are the costs that vary slightly from month to month. This includes food, clothing, and even unexpected emergencies.
Saving vs. Spending
If you’re trying to get a handle on your spending, it helps to take a look at your saving habits. As a rule of thumb, you should always be saving more than you’re spending. Or, at the very least, you should be earning more than you’re spending.
Continue with this mindset as your income grows over the years. Some find it helpful to stick to spending a portion of their income on necessary expenses and another portion on extra items. If you only spend 15% of your current income on additional “wants,” then you can slowly increase that amount as your income grows with you.
If it helps, apply the 50-30-20 rule. You use 50% of your income on necessities, 30% on wants, and then put 20% back into savings.
Budget Tools to Cultivate Great Spending Habits
Taking a looking at your spending habits is an easy way to see where you’re going wrong and what you’re doing right. If your bank provides you with mobile banking tools, you’ll likely be able to get an overview of your spending habits.
However, budgeting tools are so comprehensive these days that most budgeting apps allow you to do other things, such as track your credit score and set up auto payments to ensure you never miss a payment.
Some of the best budgeting tools that can help you track and curb your spending are:
- Mint: From balances to bills and credit scores, Mint brings everything together in one place and provides users with a pretty easy-to-use interface that makes navigating your spending easy.
- Goodbudget: This platform uses the envelope system to actually help users work towards their financial goals. You’ll be able to portion out your monthly income toward specific spending categories.
- YNAB: This budgeting tool follows the zero-based budgeting system where you plan for every dollar that you earn. It forces you to justify and account for all of your expenses, which in turn forces you to be more deliberate about your spending.
Spending with the Right Debit Card
In this edition of financial literacy, we’ve learned that you need a checking account in order to spend wisely. You’ll also need to understand how to budget your expenses and how to track your income and spending in order to optimize your financial health.
The Cheese Debit Card can not only make it easy to track your spending but also help you earn cashback as you spend.
Think about all that cash you can save to spend later with our perks:
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