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Financial Education

Financial literacy 101: The basics you need to know

April 02, 2024 | 5 min read

In this article

  • Financial literacy is one of the most important skills to develop
  • Budgeting is best: learning budgeting basics will help you reach your financial goals
  • Debt matters: manage debt, pay on time and explore payback options to save your credit
  • Stay focused on your future! Start saving and take it step by step

Whether you just opened your first checking account or you’ve been “adulting” for years, financial literacy is one of the most valuable skills you can develop. Like learning to ride a bike, it takes time and experience to master – and the best thing you can do is start early.

Financial literacy is your ability to understand and effectively use various money-management skills like budgeting, saving and investing. Before you begin your journey of financial knowledge, just remember there isn’t one right way to be financially literate; it all depends on your circumstances and financial goals as you move through life. However, there are some basics that everyone could benefit from as they get started.


A budget is simply a plan for what you intend to spend over a set period based on your current income. A sensible budget creates a foundation for an effective money-saving strategy. For example, if your monthly income is $2,800, your budget might look something like this:

  • Rent or mortgage: $1,200
  • Utilities: $250
  • Groceries: $280
  • Phone: $70
  • Car payment, insurance and gas: $300
  • Savings: $400
  • Miscellaneous: $300

Of course, many factors could make your budget look different than this example, such as your income, hobbies, healthcare needs or the number of people in your household. Here are some budgeting tips to help you personalize yours.

  1. Separate needs from wants.  There are things you’ll inevitably need to include in your budget, like your house payment and the cost of food. These expenses should take precedence every month because there’s no avoiding them; plus, they’ll shape other parts of your budget, like your savings and “fun” money. Once you’re confident in the amount you budgeted for your needs, you can turn your attention to your wants. Maybe you’re looking forward to a relaxing massage or you’d like to update your home décor. It’s a good idea to have a category dedicated to these wants in your budget to ensure you aren’t dipping into funds for your bills or your savings.
  2. Stay organized.  A budget is only worth having if you can keep track of it. Find a way that works for you, whether it’s a detailed spreadsheet, mobile app or a simple pen-and-paper budget. It’s helpful to have a single source of truth where you can establish your budget for the coming month and make tweaks when things change. For example, you might receive a birthday check for $100 that you can add to the “wants” category of your budget. Or you might need to deduct money from your savings or miscellaneous funds if you pay for unexpected plumbing repairs.
  3. Put your savings first.  It’s easy to fall into the habit of allocating a certain amount of money to your savings, then spending it anyway. Try to avoid this by setting aside your savings as soon as possible after you get paid. An easy way to create a barrier between your spending money and your savings is to put them in different accounts. Although you’ll still see it every day, the idea behind the money in your savings account is to pretend you don’t have it at all. Another trick is to adjust your direct deposit settings so that each paycheck is split up between your checking and savings. A percentage (or a flat amount) of your choice will automatically hit your savings every time!
  4. Factor in retirement.  Retirement age might seem like a lifetime away, but it’ll come sooner than you think. Your retirement contributions should be factored into your budget as soon as you can afford them. Especially if you’re just starting out in your career, it’s wise to put money into a retirement account starting with your first paycheck.
  5. Make changes as needed.  While you should stick to the budget you’ve set, it’s normal for your budget to change month-to-month or evolve over time. Many events in your life could warrant these changes, like getting a promotion, having children or moving to a new home. Try to prioritize being realistic over being consistent each time you set a new budget.
  6. Reward yourself.  Finances can be overwhelming, so it’s important to recognize your victories, big and small. Set some realistic goals – like reaching a certain balance in your savings account or staying faithful to your budget for six months straight – and reward yourself for achieving them. Whether it’s a nice dinner, a new outfit or concert tickets, give yourself a reason to keep working toward your goals.


The main goal of any budget is to prevent spending more money than you have, but you should also aim to set aside a chunk of money from each paycheck. Saving is critical because it creates a safety net for you down the line if unexpected costs pop up, like home repairs or medical bills.

The toughest part of saving can be seeing that extra money in your account and resisting the urge to spend it. If you’re confident you won’t be tempted to dip into your savings, you could set up a savings account with your primary financial institution. If you need a bit of extra discipline, consider setting one up with a separate institution – that way, you won’t see your savings balance every time you log in to do everyday banking. It’s an “out of sight, out of mind” trick to help you go about spending as if your savings doesn’t exist.

While your checking account houses your spending money and is typically linked to a debit card, a savings account is designed to hold onto your money long-term and grow over time with interest. Most financial institutions offer three types of savings accounts:

  1. Regular savings account.  These typically have low interest rates – meaning you’ll only make a small amount of extra money on them over time – but easy access to your funds. It’s a great way to start saving, especially if you can only contribute a small amount upfront and it’s likely you’ll need to pull money out for emergency purposes. Be sure to ask about the limits on transactions before you open the account; if you plan to withdraw money regularly, you might be better off opening a checking account.
  2. Money market account.  These tend to have slightly higher interest rates than regular savings accounts (usually the more money in your account, the higher the rate) and they may have a minimum balance requirement to avoid fees. A money market account typically comes with a debit card and checkbook and the access to your money would be similar to a regular savings account.
  3. Savings certificate, or certificate of deposit (CD).  If you want a high interest rate and you’re confident you won’t need to access your savings for an extended period, a CD – also referred to as a savings certificate by credit unions – is your best bet. With this kind of savings account, you’ll agree to a specific term (which could be six months to several years) where you won’t withdraw any money. If you do withdraw before the term ends, you’ll likely pay a fee. Some CDs or savings certificates will require a minimum balance and they typically don’t charge monthly fees. If you have at least $1,000 to deposit and you’re looking for a term anywhere from six months to five years with no monthly or annual service fees, a  Desert Financial Savings Certificate  could be right for you.

Managing debt

Debt is money you’ve borrowed that needs to be paid back. Common examples are credit card debt and car loans. There’s a delicate balance when it comes to the amount of debt you should have – and it all depends on your circumstances. There are types of debt that are considered “good debt,” like student loans and mortgages because they help build your credit and add something of value to your life such as education or homeownership. Then there’s “bad debt,” which doesn’t help your financial future, like excessive credit card debt.

If you currently have debt you want to manage, here are a few tips:

  1. Know your debt-to-income ratio.  This is all your monthly debt payments divided by your gross monthly income. Let’s say you pay $1,800 a month between your car and house payment, and your gross monthly income (before taxes and other deductions) is $6,000. Your debt-to-income ratio would be 30%. Anything at 36% or less is considered manageable, so if you’re already at or above that, it’s probably not a good idea to bring more debt into your life.
  2. Pay on time.  This might seem like an obvious piece of advice, but it’s an important one. Late loan payments negatively impact your credit score – in fact, your payment history carries the most weight out of all the factors that determine your score!
  3. Pay extra, if possible.  With any loan, you’ll owe a minimum payment each month – let’s call it $200 for your car payment. While there’s nothing wrong with making the minimum payment, you’ll pay off your loan faster and save more money in the end if you pay more than you’re required to. If you can bump that $200 to $250 or $300 each month, you’ll be on track to get out of debt faster.
  4. Search for a lower interest rate.  If your current interest rate on your loan is higher than average and you qualify for a lower rate, consider refinancing. Depending on your new rate, you could save a chunk of money each month.


When you invest, you essentially spend money now with the intent of making more money or achieving some other benefit later. Being a successful investor comes with time and education, so you don’t need to understand all the investment types to know the basics of financial literacy. Once you’re confident in your ability to budget, save and manage debt, consider scheduling an appointment with a financial advisor to customize your investment plan based on your financial goals.

In the meantime, you can start contributing to your retirement savings to create a foundation for your investment portfolio. Ask your employer if they offer a retirement plan with a company match – if they do, you’ll get money on top of what you’re already contributing toward your retirement. For instance, if a company matches up to 4% of your salary, you’ll receive that money if you contribute at least 4% as well. If your employer doesn’t offer a match, you may want to speak to a financial advisor about getting started with your own retirement plan.

Start small today

Financial literacy might seem daunting, but there are countless resources out there to help you get where you want to go. Visit our learning center for more financial literacy tips and tricks – and don’t forget to take your journey one day at a time.

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The material presented here is for educational purposes only and is not intended to be used as financial, investment or legal advice.

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