Knowing enough about money to cover your bills is a start, but it’s not enough financial literacy to provide long-term security. Most of us eventually wonder what else we should be doing — and whether what we don’t know could hurt us.
“When you have a blind spot, you don’t realize until something blindsides you,” says Mark DiGiovanni, a certified financial planner in Grayson, Georgia .
Identifying the gaps
Self-assessments, like this quiz adapted from the Financial Health Network, as well as personal finance books and websites can help shine a light on what you don’t know.
Accredited financial counselor Bret Anderson of Morrison, Colorado, has spent much of his career helping incarcerated veterans get back on their feet and has also advised high-wealth clients. He says five things frequently predict who will manage money successfully.
Two habits — saving and investing — are crucial, he says. Good money managers also:
— Know how credit works.
— Have a plan to build wealth and pay off debt.
— Know what passive income is and how to create it.
If anything on that list is unfamiliar to you, that suggests a starting point for research. “There are plenty of resources just a Google search away,” says Heather Winston, assistant director of advice and financial planning at Principal Financial Group.
Nail the basics, then keep learning
Before you add complexities, be sure you are:
— Saving. It’s an essential habit.
— Budgeting. If you don’t have a formal budget, check online for help creating one .
— Planning for emergencies. You can’t prevent unexpected expenses. But an emergency fund, excellent credit, insurance — or all of those — can keep them from devastating your finances.
Next, protect your money and access to credit. Here’s how:
Check your credit scores and reports
Lenders and potential landlords or employers may see those, so it’s smart to know what’s there. In addition, a big swing in your score or an account on your credit reports you don’t recognize could suggest identity theft.
You can check your credit reports for free at AnnualCreditReport.com. Many personal finance sites and credit card issuers provide access to free credit scores.
Keep your identifying information safe
…And practice good cyber hygiene. That means avoiding public Wi-Fi, being careful about what you post on social media, not opening email attachments or links you weren’t expecting, and using strong passwords. Consider freezing your credit — and that of your child — to reduce the likelihood that you’ll be victims of identity theft . Setting alerts on your credit card accounts can also let you know when they’re used.
Learn to recognize scams
Scammers try to create a sense of urgency so that you pay first and think later. They know how to make phone, email or text communications seem real. Pause before acting, independently confirm the contact information and initiate communication yourself. And remember that no one legit asks for payment by gift card or prepaid debit card.
Set goals for yourself
…And remember that those are individual. “One of the most critical lessons to learn is to stay focused on your needs, not on what someone who doesn’t know you, your goals or your life is saying,” Winston says. Consider working with a fee-only, fiduciary financial planner or a financial coach for help with identifying your own goals and path.
If you’ve had some success investing in a bull market, for example, you might not be an investing genius. Feedback from a professional may help you decide whether you were smart or just lucky, DiGiovanni says.
Help your children become financially literate
And put guidance in language they understand, Anderson says. He recalls his mother putting money aside in a “rainy-day fund,” which made no sense to him because where they lived, it seldom rained. Help children see how money is relevant, he suggests. Let them see how you make financial decisions, then let them make a few of their own.
Learn as needed
You don’t need to become a walking financial encyclopedia. There are things you may never need to know or that you can learn when they become relevant. Examples include:
— Financial consequences of big life changes, such as marriage, divorce, parenthood or retirement.
— Refinancing a mortgage.
— Rent vs. buy decisions.
— Saving for college.
— Mandatory retirement withdrawals.
— Income tax implications of side jobs.
While no one wants to make a mistake, the costliest one may be waiting until you have “extra money” or feel more confident about financial decisions. The sooner you start saving and investing, the more compound interest can grow your wealth.
“People don’t understand the time value of money,” DiGiovanni says. “Every day you postpone is another day you will have to work.”