The Simple Basics That Will Make You a Smarter Money Manager

There's a growing push in the U.S. to add classes in financial literacy to the high school curriculum, and there's good reason for that initiative. There are a number of important basic personal finance issues that most adults know little about. The problem is that if you don't understand these basics, you may not be making the best financial decisions, and that can make it harder to reach your financial goals.

What are the issues and the solutions?

1. How to create a budget you can live on

If you don't have a monthly budget, you're not alone. According to a survey by Bankrate.com, 40% of those who responded don't have a budget to guide and track their spending and saving. A budget is the foundation for a healthier financial future, and it's never too late to create one. You can use budgeting software to create a plan and track spending or a worksheet that you print out and complete. Knowing where your money goes can help you find places where you may be able to cut expenses and increase your savings so you have money set aside for emergencies or big purchases like a home.

2. Why you need a checking account and a savings account

With the decline in interest rates, more people are putting all their money into a checking account and not bothering to start a savings account. Even though you may not be earning a lot of interest, a savings account gives you a place to build up your emergency fund or save towards a goal like a new car or home improvements. Because your money is not in the account you use day-to-day, you'll be less likely to spend it. One strategy to boost your savings is to find a small expense, like a daily $3 latte, skip it once or twice a week and put the money into your savings. In a year, you'll have saved almost $300.

3. Why credit card debt grows so quickly

If you use a credit card and do not pay the balance in full each month, you may be surprised by how quickly your balance increases. What many people don't understand is that the interest your credit card company charges isn't just based on the amount of the balance you did not pay that month. It is based on the average daily balance, including purchases you make the next month. If you only make the minimum required payment on your credit card balance, you could end up paying hundreds or even thousands of dollars more interest than you would if you paid your balance in full every month.

4. How starting your retirement savings now can change your future

If you're years from retirement, you might put retirement savings at the bottom of your financial to-do list, but starting to save when you're young can help you build a much bigger nest egg. Here's how. If you save $2,000 a year starting when you're 25 at a relatively modest interest rate of 8% annually, you'll have $560,000 when you're 65. If you don't start saving until 35, at 65 you'll only have around $245,000.