Financial Literacy
Financial literacy is the ability to understand how to be in charge of your finances. This includes working on budgets, saving, investing, borrowing, planning, and knowing how to make wise financial decisions.
Luckily, you can work on this even before you get into a relationship. When we do not know how to financially take care of ourselves, when we begin dating and get married, it can be like jumping into the deep end with no prior knowledge of how to swim.
Where do you start?
That is a great question! Let’s start by looking at your finances.
Budgets
A budget is a place where you track your income, expenses, savings goals, investments, and more. A budget helps you to plan for how to cover your expenses and how to save towards your goals. There are many layouts and formats for budgets. You can make one on paper, in a spreadsheet, or through an app on your phone.
Take a minute and think about all the things you have spent money on in the last week and month.
Did you put anything in savings?
Did you give money to a charity?
Did you buy shoes?
Did you eat out?
Did you get paid lately?
Think of all the ways you spent money.
A good way to start understanding your spending habits is to write down everything you spend money on (divided into categories like gas, bills, food, and clothing, etc.) for 2 weeks. You can then multiply each category total by 2.17 to get your monthly expenses total. Now you can start planning how much money you need or want to allot into each category of your budget with your paychecks.
Your budget will change over time as you add categories, earn more, and plan for new goals. Keep your budget updated as you earn and spend money so that you know how much you have to spend and can feel in control of your money.
Before you start spending the paycheck, be aware of how much money you get quarterly, monthly, or biweekly.
Make a list of items you need for the month or until your next paycheck.
Pay your bills first, then see what you have left over to budget.
Within your budget it is generally a good idea to put 10% of your paycheck into savings (Hill, Sudweeks. 2018). You may not always be able to do this, especially if you do not live at home with your parents or if you are married, but when you are single and do not have a ton of expenses this can be a little easier. When your paycheck comes in regularly, you generally have a good idea of how much money you will get, and this way you can set up a schedule to pay bills or for what to plan for. If you do not have bills, then you can invest!
Having a written idea of where your finances are is a great way to be in control of your money. Often, people do not learn how to have a budget or a credit card. Not knowing these skills can put young adults at risk for hard times when they first have bills with due dates, get a credit card, or have loans they suddenly do not know how to use or pay on time. If you prepare yourself now, then when you get married or move out, budgeting will help you through that transition instead of adding hardship.
According to Fundamentals of Family Finance: Living Joyfully within Your Means (Hill & Sudweeks. 2018)., a young adult should:
Do you need to buy a car? Do you want to go on a trip? Do you have an emergency savings fund?
Having goals can make money more fun and a little less stressful.
Make some specific, measurable, attainable, relevant, and time-bound goals, known as SMART goals. (Hill, Sudweeks. 2018. Pg 33).
Credit Cards
Why are we bringing this up in a Self-Preparation course for relationships?
Often, couples get in relationships with someone who has horrible credit card debt. This can be really scary and complicated to marry into. Knowing how to manage a credit card is very important, so you do not bring credit card debt into your relationship. Learning how to be in charge of these things and not letting them control us is very important.
If you are familiar with Dave Ramsey’s views on credit cards, you might be saying “well I am not getting one anyways”. However, in case you are curious about getting one at some point, here are some pointers to help you make an informed decision.
Personal Story:
I, McKaylee, have had a credit card since I was 16. My dad co-signed on the credit card so that I could build credit, and I know not everyone gets that privilege, because if things went badly it would have been my dad’s responsibility also.
When I got married, I had a credit score of 720. Which is good, especially given that I did not take out any loans or miss a single payment. My husband leaned more on the Dave Ramsey side of not using credit cards. So, when we got married and I already had a credit card, we had to learn how to work together to know how to manage this new thing for him. Some people may say that credit cards are scary. You might be asking yourself, what do I do? This is to help you make a more informed decision. My husband was nervous about using one too! He hated that I had a credit card, however when we were looking at some nice apartments, we had to get a credit check.
Credit Scores
Watch this to learn about credit scores and why we need them:
What is a Credit Score and How is it Calculated? (2:09)
Having a credit card will help to build credit before buying a new car, getting an apartment, buying a house, and getting a phone plan. Just know that it is ok to be scared. Learning how to use one will help you know if you are ready to use one or not. Getting your score checked does bring your credit score down so be aware and cautious of letting places check your credit.
Don’t be Nick Miller, watch the video below to understand this joke.
Some light New Girl Comedy
Credit Card Tips
Research cards, do not jump into cards. When looking at getting a credit card, you should not get one on a whim. You might be familiar with stores like H&M or Forever 21 trying to get you to sign up for their credit card to get some money off your purchase. However, this is not a great way to get a credit card. You should do research on what credit cards best fit your lifestyle. There are websites that can help you decipher what best fits your needs. An example of websites that can help you look at credit cards and choose between them are Credit Karma, NerdWallet, and Bankrate. On credit karma, it lays out the interest rates, the terms, rewards, and the possibility of getting the card before you run your credit.
With a credit card, you have one billing cycle to pay off the entire balance with no added fees. If you leave a balance, that amount will have the cards interest rate applied to it. Typical rates are 14.99% to 29.99%. This means if you leave $50 in your account, there could be $14.99 worth of interest added to it in one month. Each month you don’t pay the balance down to zero, interest will be added to the balance, including the previous months’ interest. That is exponential growth in a bad way. Credit card interest is dangerous! The safest way to use a credit card is to always pay your balance down to $0 each month and never incur interest fees.
This means two things. One, know yourself and what you can responsibly handle. Don’t get a credit card until you know you can pay the full balance on time and can control your impulse spending. Two, each card has a maximum limit. Don’t try to get a card with a higher limit if you know you might be tempted to spend more than you have in cash. Look for a card with a lower credit limit ($200-$500) to start with as you practice healthy financial habits.
Once you know the limit on your credit card, make sure not to spend or leave a balance that reaches that full amount. For example, just because you have a $500 limit does not mean you should charge $499 dollars to it every month. When you use a credit card, you should only use 30% (Thomas, 2025) of your credit limit to be able to build your credit effectively. So, if you have a credit limit of $500 you should only charge and then fully pay off $150 dollars a month.
Credit cards are only supposed to be used if you have the money to pay for the item already. Remember to include paying off your credit card down to $0, as a budget category in your budget every month. Do not forget it.
Be aware of what is being spent on your card. Review the charges on your card at least weekly. Add a reminder to your calendar to check in on your account and make payments. This will help you monitor your spending habits, ensure that there are no errors in charges, and stay aware of the due date. You can take advantage of auto pay, notifications, and other features of the card you choose if it is helpful.
Evaluate many cards. Compare their benefits, yearly or late fees, interest rates, and billing cycle length. Some cards have a yearly fee in order to keep the card. Some cards offer rewards points.