Financial Literacy 101: 6 Important Things You Need to Know About Money

Inside: Learn the important things you need to know about money to gain financial literacy and regain control over your money.

Financial literacy is a skill that all of us need to thrive – but it’s one that most of us don’t get a chance to master when we’re young.

Unless you go to college and pursue a degree in finance, you probably got very little if any formal education on the topic of managing your money.

Instead, you’re left to your own devices – your parents, your friends, your experiences, and whatever resources you can get your hands on. 

If you’re ready to boost your financial literacy and get a better handle on your money but aren’t sure where to start, I’ve got you covered.

In this post, I’ll cover some of the most critical concepts and important things you need to know about money:

6 Important Things You Need to Know About Money

Understanding how these concepts work can make or break your finances. Here are six important things you need to know about money.

#1: Budgeting

Budgeting is essentially a plan that outlines your expenses and your income. Without a budget, it’s easy to overspend and difficult, if not impossible, to save money.

A good budget can empower you to plan for the future, spend mindfully, and save for your goals.

To start budgeting, you need to:

Understand your income.

How much do you earn each month? Do you have money coming in from any other sources than your primary job? 

Identify your expenses.

What bills do you need to pay each month, and how much do they cost? And what else are you spending on? Food, transportation, and entertainment are common categories to look at.

Set spending limits.

Give yourself a dedicated amount to spend on those miscellaneous categories like food and entertainment – and stick to it.

As for your bills? Shop around to see if you can lower your insurance, cell phone, or internet costs, and consider cutting back on monthly subscriptions to simplify and save more money.

Review regularly.

Look at your budget each month – or more frequently – to make sure you’re on track. See if you can find money drains and slow the flow where you can.

Ready to build your budget? Get started with this free basic budget planner.

#2: Emergency Funds

When you make a budget and start saving money, one of the first things you should prioritize is saving for your emergency fund.

The idea is simple – it’s money set aside in case an emergency strikes. That emergency might be losing your job, a medical crisis, a car accident, a major unexpected expense, or anything that represents a dramatic drop in your income or an increase in your expenses.

Ultimately, it’s ideal to save enough in your emergency fund to cover at least 3 – 6 months of your expenses. 

While that can feel like a big challenge initially, cutting your spending will help you to have more money to set aside which adds up over time.

#3: Good Debt vs Bad Debt

When you think of debt, you probably think of it as a negative – but that isn’t always true.

In some cases, advanced investors use debt as a tool to make more money. However, that requires knowledge and experience to do properly without getting in over your head. It’s also important to realize that there is always risk involved with taking on debt.

Two other types of debt that people tend to perceive as beneficial are student loans and a home mortgage.

Student Loans

While some college degrees may help you reach your goals and secure a higher paycheck, that is no longer a guarantee. It’s important to weigh the pros and cons of pursuing a college degree and to realize there are alternative options.

Attending a junior college or trade school costs significantly less. And some employers no longer require degrees depending on the type of work you want to do.

Mortgages

A home mortgage can help people to achieve their dream of home ownership. However, in recent years housing has become increasingly unaffordable.

Before buying your next home it’s important to ask yourself some questions such as how long do you plan to stay there? Can you comfortably afford the monthly payment while taking into account all of your other monthly bills? Could you rent out the home for you’d be paying monthly?

It’s not a given that the housing market will go up indefinitely so it is possible to get in over your head and what seemed like a good financial investment can end up becoming a boat anchor.

Don’t make the decision to buy a house based on feelings or FOMO. In our case, we decided to focus on what we love about our current home and are waiting for the right timing for us.

Credit Card Debt

The final category of debt you should understand is credit card debt. This type of high-interest debt can get out of control quickly and create a problem that takes years to overcome. It’s best to try and avoid it at all costs.

Read this article to learn more about good debt vs. bad debt and remember that all types of debt carry risk.

#4: Interest Rates

You often hear about interest rates in relation to a few things – savings accounts, credit cards, and loans.

Interest is essentially the cost of borrowing money or the reward for saving money, and it’s often represented by a percentage. 

When looking for a savings account, consider the interest rate. The higher the interest rate, the more money you’re going to get as a result of keeping your money in that account.

And when looking at taking on debt? Be especially wary of the interest rate.

Whether you’re looking at mortgage rates, student loans, or car loans, the interest rates associated with this debt can dramatically alter how much you end up paying by the end of your loan term.

Home & Car Payments

Before signing anything make sure to read the fine print and understand everything that you are agreeing to. These are likely the biggest purchases you will ever make so it is critical to understand what legal agreement you are getting into with the lender.

Is your rate fixed or will it adjust? Have you reviewed how much of your payment goes to interest vs the debt itself? Realistically, how long will it take you to pay off the debt? And by that point how much will you have paid in interest?

Keep in mind that the person trying to sell you the loan isn’t necessarily looking out for your best interest. They’re typically trying to make a commission. You may be approved for something that would not be a good financial decision for you.

This is why it is crucial to do your own research and homework before agreeing to anything. Ultimately you will be the one held responsible even if you didn’t fully understand what you signed.

Credit Card Interest & Payments

And finally let’s address credit card debt, which I think everyone can agree is bad debt.

As of September 2025, the average credit card rate is over 27%. Credit card interest is typically measured as an annual rate. With rates like that, interest charges add up quickly when you don’t pay the full balance each month. Check out this credit card calculator to see how credit card interest works against you.

Paying the minimum monthly payment will keep you indebted to the credit card company forever. If you want to learn more about interest rates, this article has a lot of great information. 

#5: Klarna and Afterpay – Two Popular Buy Now, Pay Later Options

Recently, services like Klarna and Afterpay have emerged as easy ways to buy something without paying the full cost upfront. They’re an updated form of buying something on layaway.

Historically, you’d have to put that on a credit card and accrue interest – but with Klarna and Afterpay, you can set up auto-payment from your bank account or credit card and pay over time at 0% interest.

While it’s an attractive option when you’re low on cash and want to make a purchase, it’s important to understand the risks.

While you won’t pay a fee to use these services, you’ll incur a late fee if you miss a payment. And if you’re trying to stick to a budget, Klarna and Afterpay can make it tempting to overspend, putting your financial goals at risk. 

Unfortunately, these types of payment options are often a catalyst for people to get further into debt for items that they didn’t truly need but simply wanted.

Buyers would be better served by implementing strategies to stop buying things they don’t need and avoiding pay-later options completely.

#6: Credit scores

Your credit score is a three-digit number that illustrates your creditworthiness – how likely you are to pay back a debt on time and in full.

It’s used by lenders of all kinds, from credit card companies to mortgage lenders, to determine if they are willing to lend you money, how much they’re willing to lend, and at what interest rate.

They assess your credit risk and may offer different interest rates depending on your perceived creditworthiness.

Your credit score isn’t just tied to how quickly you pay off your debt. In fact, it’s based on a few different things – the length of your credit history, your on-time payments, and how much of your available credit you’re using at once. 

If you’re ever hoping to obtain a mortgage, take out a car loan, or otherwise leverage debt to make a purchase, it’s important to know how credit scores work and what you can do to improve them.

It’s also smart to monitor your credit score regularly and evaluate your credit report to make sure there isn’t any fraudulent activity. 

Take a deeper dive into credit scores here. 

Final Thoughts on the Things You Need to Know About Money

These are just some of the things you need to know about money if you want to get your finances under control. There are many helpful resources available to help you continue to learn more.

Remember to do your research and don’t blindly trust others to make your financial decisions. Don’t let people with a vested interest tell you what you can afford. Ultimately, you care the most about your money and you will be the one who lives with the financial decisions you make.

Gaining financial literacy not only helps you to make more informed decisions, but it can help you teach your kids this important life skill.

Help them learn how money works by teaching them to budget their money as they grow up. This will provide a foundation of financial literacy that will help them throughout their lives.

Did any of these things you should know about money surprise you? Leave a comment and let me know what you learned – or what you’d like to learn more about!

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