3 Money Lessons to Learn First

Quick Answer

Here are the three money lessons you should master first:

  1. Pay yourself first
  2. Budget your money
  3. Only borrow what you can repay

These core areas of money management provide stability for your full financial life and make it easier to check other financial boxes and reach your goals.

Young couple calculating finances while sitting at the domestic kitchen

When it comes to managing your money, there's a lot of information out there. And while maybe you can't know too much about improving your finances, all that advice can be a lot to wade through—especially if you're just getting started.

We've got you. To help you improve your finances now, here are three crucial tips for managing your money. Just the essentials, and nothing else.

1. Pay Yourself First

The key to achieving your financial goals—even those massive undertakings like buying a home and achieving financial freedom in retirement—is to save early and save often. But how do you make saving second nature? The trick is to embrace this piece of advice: Pay yourself first.

When you pay yourself first, you put some of each paycheck directly into savings accounts and investment accounts. The reasoning is that, by prioritizing your savings before you even cover your expenses or do any discretionary spending, you'll have more to save. You won't be able to use that upcoming bill as an excuse to skip adding to your emergency fund "just this once" because your savings is already taken out of your available funds.

How to Start Saving

See if your employer allows you to split your direct deposit up so that a portion goes into checking and a smaller slice into savings. That money can first go toward building up an emergency fund. After you've checked that box, you can save that money for another goal, such as a down payment on a house.

In addition, route some of your pretax pay into a 401(k), if your employer offers one. Otherwise, you can deposit a portion of your paycheck into an individual retirement account (IRA) and write off your contributions on your taxes. If you aren't sure what 401(k)s and IRAs are, or if you haven't started investing toward retirement yet, learn how to save for retirement and watch your small deposits grow into an impressive nest egg.

2. Budget Your Money

A budget is a plan for your money. It's a tool for managing your finances so that you predictably cover your expenses, save for the future and, ideally, have cash to put toward the things you love―those discretionary purchases like dining and shopping.

The long-term benefit of a budget is that it makes reaching your biggest financial goals more attainable. It turns money from something you earn and then spontaneously spend into something you control. That's a huge gain for your long-term financial stability: Efficiently controlling your money is the foundation of financial wellness and building future wealth.

How to Start Budgeting

There are many different approaches to budgeting, and the right plan depends on your personal preferences and your spending personality. There are highly structured approaches to budgeting, such as the zero-based budget and envelope budgeting.

There are also more flexible approaches, such as the 50/30/20 budget. This budget has you allocate half your income to covering expenses, 30% to spending and 20% into savings and debt repayment.

However you budget your money, remember that the key to sticking with your budget is staying flexible. Consider using a budgeting app on your phone to make tracking your spending easier. That way, if you overspend in one area, such as at the grocery store, you can pivot to cut back elsewhere. That can help you avoid blowing your budget and stay on track.

3. Only Borrow What You Can Repay

Borrowing money can help you achieve a number of goals, such as buying a car to get you to and from work or putting a down payment on a house. In that sense, debt isn't always a bad thing. However, debt can easily spiral out of control. When it does, the impact on your finances (and your stress levels) is damaging.

Once you're in it, getting out of debt can be challenging. Carrying debt and the interest it accrues restricts your financial freedom. That puts a damper on your long-term ability to build wealth. And if you miss payments or enter into default on your debt, the negative effect on your credit score can impact your ability to borrow in the future.

How to Avoid Bad Debt

To keep debt working for you, not against you, always have a clear financial plan for how you'll pay off debt before you borrow. Look at your budget to determine how much you can really afford to pay. As a rule, avoid taking on a credit card balance or any other high-interest debt that you can't repay before the end of the grace period, when interest begins to accrue.

The Bottom Line

Saving, budgeting and avoiding bad debt make up the three-legged stool of financial success. These core areas of money management provide stability for your full financial life. Manage them well and you'll find it easier to check off other financial boxes, such as affording insurance, building equity through homeownership and saving for education. Plus, you'll be better able to afford those things that simply bring joy to your life.

Last, don't overlook this important area of your finances: your credit score. Taking care of your credit will make it easier to borrow at advantageous rates when you need to make a big purchase. Consider signing up for free credit monitoring through Experian. You'll see how your approach to debt management is impacting your score, and you'll have access to personalized insights on how you can further grow your credit.