12 Personal Finance Skills Everyone Should Master

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I was happy to see that my son signed up to take a personal finance class in high school next year. I think mastering basic personal finance skills is one of the most important things you can do to improve your happiness and quality of life. But you're a full-fledged adult. If you haven't already, the earlier you start developing and using personal finance skills, the more time you have to reap the benefits.

Here is my list of personal finance skills every frugal person should master.

1. Budgeting

Setting and following a budget is probably the most basic personal finance skill, yet only about one-third of people actually have a detailed budget. I went for years without an accurate budget, using my checking account balance as a rough gauge of how much money I had available to spend. Eventually, I realized this was a terrible way to run my personal finances. A detailed budget is necessary to get a handle on where your money is going and to start deciding where you want your money to go — instead of just watching it go away!

Writing out a list of all of your income and expenses is only the first step toward becoming skilled at budgeting. You need to monitor spending and work to stay on track every month. Sometimes unexpected expenses will pop up, and it takes skill to find ways to spend less in other areas to recover and stay on budget.

You can get a real budget started by looking at your bank statements and credit card bills from last month and adding up spending by category. I used colored highlighters to mark up my spending into categories such as food, clothing, pets, entertainment, transportation, housing, utilities, etc.

Food expenses are especially challenging for me, since food cost varies so much depending on what you decide to eat. In my household, we use a money envelope as a tool to help us stay on our food budget. Every payday, I take out cash for the budgeted amount for food spending, both groceries and dining out. All food spending comes out of the money envelope, so we always know how much is left to spend on food.

2. Negotiation

Negotiation is a key skill to master to get the best deal when buying or selling something, or even getting the best salary and benefits when accepting a job offer. Most people do not like to negotiate. It is easiest to pay the asking price, or accept the amount offered from a buyer or employer. But if you become skilled at negotiation, you can end up with lots more dollars in your pocket instead of in the other guy's pocket!

Here are some skills that successful negotiators master:

• Be willing to walk. Successful negotiators are willing to walk away if they can't get a good deal. Willingness to walk away gives you the confidence to ask for what you really want and drive a hard bargain. Often, you'll learn things in deals that don't work out that help you get a better deal in the future.
   
• Be reasonable. Good negotiators understand the market value of what they are negotiating and can understand the deal from the other party's perspective. If you seek an unreasonable deal, you are likely wasting everyone's time and won't end up with anything.
   
• Be perceptive. They pick up clues from the other party to determine what kind of offer they would accept and use this information to negotiate the best deal possible.

3. Separating Needs vs. Wants

Do I need a new computer? My kids say that I do. I am using the same computer they used to play games on way back when George W. Bush was in office. I sometimes use my cellphone to look things up while my computer slowly loads a webpage. But I don't need new computer. I can still get everything done with my old computer, including paying bills, updating my budget spreadsheet, and even writing books and articles for extra income.

Separating needs from wants is a key personal finance skill. There is almost no limit to bigger, better, and newer stuff that you could decide to buy. The best way to make spending decisions is to become disciplined at distinguishing needs from wants.

I like to think about the consequences of not buying something as a tool to distinguish needs from wants. For example, if I don't buy the new shoes I am considering, will I not be able to go to work? Will I miss events for my kids because I don't have any shoes that are acceptable to wear? Will I not be able to exercise safely? At some point new shoes can become a need, but if your old shoes are still doing everything you need your shoes to do, then new shoes are a want.

4. Driving Down Interest Rates

A lot of people carry debt — the total credit card debt for Americans is set to hit $1 trillion dollars this year. Of course, your best move is to pay off debt as quickly as possible to reduce your interest payments and to free up your money to invest or pursue other opportunities. But while you are paying off debt, it is worth putting in some effort to keep your interest rates as low as possible.

The average credit card interest rate is nearly 15%. If you have credit card debt and don't keep an eye on the interest rate, you could easily end up paying 15% or more. Shopping around can almost always result in a better deal. If you have a good credit rating, you can likely find a balance transfer offer that will allow you to pay a balance transfer fee of about 3% and 0% interest for a year or more. (See also: Best 0% APR Balance Transfer Credit Cards)

I count maintaining favorable interest rates as a personal finance skill because you have to keep track of interest rates on your accounts and continuously find good deals on balance transfers. This skill can save you thousands of dollars per year on interest.

5. Continuous Investment

People who are financially successful do more than reduce spending and save money. They take the next step and invest money that they free up through smart spending decisions.

This investment mentality is what allows the small amount of money you avoid spending to grow into real wealth that can change your lifestyle and allow you the freedom to pursue your interests. Regular saving over time adds up — even with small investment amounts.

Continuous investment requires discipline to keep investing money for the future rather than spending it now. Savvy investors assess what kind of investments to buy and manage their investment portfolio based on economic trends and the performance of their investments.

The most important factor in being a successful investor is to make regular investments over the long term and let your wealth grow.

6. Bargain Hunting

Frugal people are known for having good bargain hunting skills. Making a purchase is a challenge to find the way to spend the least amount of money to get what is needed. Bargain hunting usually involves using coupons and shopping around to find the best price.

Sometimes buying a used item rather than a new item is the best bargain — you can save 50% or more buying used instead of new. Items such as tools or vehicles that are useful for years make good used purchases, but technology products often become obsolete so fast that buying new can be the best deal.

Buying at the right time can be a key to finding bargains. I am always shocked at how cheap winter clothes and coats sell for in March at clearance sales. I bought most of my winter clothes for 90% off! Keep an eye out for bargains at store closing sales and clearance sales for items you know you will use later.

An important part of bargain hunting is deciding on the best item to buy. If you can figure out the least expensive item that meets your needs, and then find the best price on that item, you are on your way to mastering bargain hunting skills.

7. Reuse

There is an old saying "Waste not, want not" that summarizes the personal finance skill of reuse well. If you don't waste anything, you will have plenty and not want for anything. I recently got into a conversation with my father about the oldest clothing item that we are still wearing. I mentioned that I still wear a lot of my 20-year-old clothes I got back in college. My father mentioned that he was currently wearing a shirt that is nearly 40 years old!

Reusing things that most people would throw away is a key skill to save money and live well with less. When I was younger, I would always prefer to have new clothes rather than wear old clothes. Now I find comfort from the familiarity of wearing clothes with lots of memories attached to them. It seems like older stuff was constructed better than newer items, anyway.

I think a lot of people are in the habit of throwing old things away just because they are old. Learn to keep reusing items until they no longer work, and then use them for something else. When my t-shirts start wearing out, I get sunburned through the holes in the fabric. Is it time to throw the shirt away? No! I use it for a rag.

8. Food Preparation

It is amazing how much restaurant food, fast food, and prepared food items from the grocery store people are buying these days. It does take some planning and work to prepare your own food at home, but you can save a ton of money and eat healthier, too.

In addition to having basic cooking skills and equipment, having a plan is key to mastering the skill of preparing your own food at home. I know it works best at my house when we make a list of meals and the buy groceries with these meals in mind. Sometimes we even write on the calendar what is for dinner to avoid not coming up with something and ending up with expensive restaurant food.

9. Do It Yourself (DIY)

It seems like everyone that comes to my house to do something charges about $60 to $100 per hour. I try to minimize paying people to come over and try to take care of maintenance and repairs myself instead to save money. I learned to do basic plumbing repairs and installation, including sweating copper pipes with a torch. I can do basic electrical wiring and repairs. Some people in my neighborhood have landscaping companies take care of mowing and weed control, but not me. The more things you can do for yourself, the more money you can save.

Develop skills to do work for yourself instead of paying others to do it for you. You'll save money and get a great feeling of satisfaction when you can do the work yourself.

10. Saying No

Saying "no" is often the key to saving time and money. Would you like to subscribe to a magazine you don't want in order to help your neighbor's kid meet a fundraising goal? How about "no." Would you like to volunteer to drive 20 miles each way to participate in a committee meeting on your day off? Again, "no" works well here. There are times when you might want to contribute your time and money to a worthy cause, but there are many times you feel pressured into taking on something you don't really want to do.

Learning to say "no" and not feel bad about it can save you a lot of time, money, and aggravation.

11. Efficiency

Efficiency is the skill of doing as much as possible with the least amount of resources. Efficiency can mean making a single trip to do all of your shopping instead of taking multiple trips. Efficiency can mean driving a smaller vehicle that costs less and uses less fuel every day.

Often, efficiency keeps paying back over time. For example, the efficient choice to live in a smaller house results in a lower mortgage payment and lower utility bills year after year.

Energy savings is another example of efficiency in action. I spent a few hours and a few dollars to upgrade most of my light bulbs to LED. Due to this efficiency, I save money every month since lighting my house now costs almost nothing.

Another form of efficiency is simply having less stuff. Do you really need eight different kinds of cleaning products under your kitchen sink? Having less stuff not only costs less, but less stuff takes less space as well. With fewer things around, it is easier to keep things organized and find what you need.

12. Contentment

I am sure that you can live with less, but can you be happy with less?

Contentment is living with a positive attitude and being satisfied for all of the things you have instead of wishing that you had blingy stuff. I drive an 11-year-old car that runs well. It even has leather seats and all wheel drive. What more do I need?

People might not get a sense of status from the vehicle I drive, but I am clearly beyond worrying about that. Part of being content with what you have is to stop caring about what other people think. People who know me respect my work and my accomplishments, and I am not really concerned about what strangers think about my car.

Contentment means setting your own standard for happiness. This can be difficult to achieve as you look at the photos of expensive vacations, recreational vehicles, and new cars that your friends post on Facebook. It is hard not to want expensive stuff when it seems like everyone else is buying it.

But the problem with pursuing happiness by buying expensive stuff is that there is always something else you'll need to buy in order to be happy. As soon as you get back from vacation, it is time to start thinking about where to go for the next one. After your new car isn't the newest on the block anymore, the excitement is gone. Buying happiness is like chasing a mirage. You can't really reach happiness through buying things, but you can spend a lot of money trying!

Contentment is about finding happiness in the life you have right now, not the life you could have if only you had more money.

Which personal finance skills would you master to improve your life the most?

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