It’s ironic people shy away from talking to others about money, considering everyone has to deal with it. But instead of taking advantage of this shared experience, a lot of people keep their questions to themselves and outwardly pretend they understand what they’re doing with money. Only once they’ve dug themselves in a hole do they start asking for help.
No one is born understanding personal finance. It’s mostly on you to figure it out as you go, which doesn’t always work out well.
“Typically in America you don’t learn about these things — you don’t learn about debt and interest,” according to Alex Sadler, managing editor of Clark.com, the namesake site of personal finance and early retirement icon Clark Howard. “You’re handed a credit card … and it’s up to you to read the fine print. People get into serious trouble.”
Sadler knows this not only because of the people who ask questions on Clark.com but also because of her own experiences. “I maxed out credit cards, I had a student loan I didn’t understand, and living that way and not changing my lifestyle, I realized that that was going to prevent me from doing things in my life that I wanted to do.”
Ideally, people would get to know how money and credit works before they start using it, not the other way around. But that backwardness is often the reality of Americans’ personal finances, which is why Sadler and the Clark.com team started a new project called CommonCents.
“A lot of the problems people face come from not understanding what they are trying to tackle,” Sadler said. “A lot of times people … think they have tried (to get out of debt) and they just don’t understand how it all works and how to make that attempt and effort successful.”
We asked Sadler about some of the core concepts that people need to know — but often overlook — in order to master their finances. Here’s what she said.
1. Understand interest
Sadler said this is a common issue among people who reach out to Clark for help getting out of credit card debt.
“A lot of people think because they’re paying the minimum monthly payments they’re not getting charged interest,” she said. This, of course, is totally false. It’s not that making the minimum monthly payment isn’t a way to get out of debt — it’s just that it can take an extremely long time.
So, how does interest work? As far as credit cards go, you can get a sense of it by using this free credit card payoff calculator (and if you have credit card debt, the tool can help you make a plan to pay it off.)
2. Learn what it means to budget
It’s perhaps the core tenet of personal finance: Budgeting. But you can’t hope to budget if you don’t really understand what it means.
“Budgeting means making sense of your money: How much money are you making? How much money are you spending?” Sadler said. Budgeting, no matter how you do it, boils down to one thing: “Spend less than you make. You’re living paycheck to paycheck? You’re not spending less than you make.”
That brings us to her next point:
3. Know your numbers
“The majority of people that Clark talks to about debt, the first thing he asks is, ‘OK, you have credit card debt — how much do you owe?’ The majority of the time, this person asking the question does not know the answer,” Sadler said. “How do you plan to pay off your debt if you don’t know what you’re facing?”
That’s only part of the spend-less-than-you-make equation. Knowing your take-home earnings, your debt, your spending, your assets — these are all things that can help you make smart financial decisions every day that will also make sense years in the future, Sadler said.
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This article originally appeared on Credit.com.