By Cameron Huddleston
Whether you aspire to be rich or just want to stop living paycheck to paycheck, you need to understand basic money concepts.
Unfortunately, essential financial terms and concepts often aren’t taught in school. So it’s up to you to learn them on your own.
“If you don’t know this by heart, then virtually every decision you make about your finances will be pretty much a guess,” said Charles Scott, president of Pelleton Capital Management, a wealth management firm in Scottsdale, Ariz.
Figuring out how much you make is straightforward: Check your pay stub or bank account to see how much is being deposited directly. To figure out where your money is going, you’ll need to review your bank and credit card statements.
Scott recommended identifying these three categories of spending, fixed expenses such as rent, mortgages or car loans; variable expenses such as credit card payments and discretionary expenses such as entertainment, vacations and restaurant meals.
“Take the time to look back at what you’re currently spending, write it down, create at least the three main categories listed above and add it up,” he said. Then you’ll know whether you have more going out than coming in and what changes you need to make to your spending.
CREATE A SPENDING PLAN
You’ve likely been told time and again that you need a budget. But budgets often don’t work because the focus is on cutting things out. A more constructive approach is to create a spending plan to plot where you want your money to go each month, Scott said.