There’s no magic formula to being financially savvy, but there is nuance to being good with money. It’s mostly a mix of planning, common sense, your credit score, commitment and a little cost-of-living calculus. People who actively build a financial blueprint they can follow — budget included — are prepared for the future and manage their money in a way that builds wealth.
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So how do you stack up? Are you savvier than the average American? Here’s a look at several signs you’re on the right path.
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It doesn’t take much effort to find the best savings account interest rates — a simple internet search will deliver all the info you need to better reach your long-term goals. Even so, a lot of U.S. consumers settle for rates as low as 0.01% APY when they can score rates at or above 5.0% APY.
GOBankingRates consistently researches to find the best high-yield savings accounts available and here are some current recommendations:
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Bask Bank Interest Savings Account
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Betterment Cash Reserve Account
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BMO Alto Online Savings Account
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Bread Financial High-Yield Savings Account
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FNBO Direct High-Yield Online Savings Account
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GO2bank High-Yield Savings Account
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Milli Savings Account
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Salem Five Direct eOne Savings Account
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Making a financial plan and establishing a monthly budget might be the two most important traits of financially savvy people. Your financial plan should encompass both long- and short-term goals and include everything from leisure activities and investment goals to major purchases such as a house or car.
In contrast, your budget should center on current living expenses and day-to-day items. Here are six steps you can take to make sure you set the right budget and stick to it:
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Step 1: List all your living expenses.
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Step 2: List flexible and recurring expenses and loan payments.
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Step 3: Add up your after-tax income.
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Step 4: Set financial goals.
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Step 5: Record and track your spending.
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Step 6: Adjust and review your budget for growth.
Nobody is born financially savvy, and nobody who becomes financially savvy ever has it all figured out. You need to keep aiming for ways to learn more — and that means seeking advice from people with expertise you might lack.
It’s important to consult with professional financial advisors who can recommend steps and investments to help you reach your goals.
One thing financially savvy people have in common is that they don’t bury themselves under a mountain of debt they can’t afford to pay off. The road to financial ruin often begins with maxing out your credit cards to buy stuff you couldn’t otherwise afford.
This leads to a vicious cycle in which you pay the minimum on your debt each month to free up extra cash for essential bills, which racks up additional interest and makes it even harder to climb out of debt.
Being financially savvy isn’t only about spending and budgeting wisely; it also means figuring out how to earn extra money beyond just the paycheck from your primary job. This can come in many different forms.
One of the most popular ways to build wealth is to put a certain percentage of your income into investments such as stocks, bonds, mutual funds and real estate. You can also earn extra income through part-time jobs and side hustles that turn your free time into a source of wealth.
The price of impulse purchases can make a bigger dent in your monthly budget than you may realize. Financially savvy people don’t have the poor spending habits of an impulse shopper. Not maxing out your credit card and sticking to your goals puts you a financial foot ahead of many consumers.
Here are a few ways to avoid impulse buying and stay savvy with your cash flow:
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Don’t lean into retail therapy and the love of shopping.
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Deal-seeking is great, but don’t mistake the crave of the save for actually saving money.
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Know that you’re not missing out if you don’t buy an item that you don’t need.
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Stockpiling items is one step away from hoarding. Only buy things for which you’ve budgeted.
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Don’t overestimate how much you will use a product you purchase.
The bottom line is that being financially savvy isn’t something that just happens. It’s the result of hard work, a thirst for knowledge and dedication to making good money decisions. Employ some of these tips today to become that much more financially savvy.
Caitlyn Moorhead contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: 6 Signs You’re More Financially Savvy Than the Average American
