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National Bureau of Economic Research

There is more bad news according to a recent survey done by the National Bureau of Economic Research. The survey, titled “Financial Literacy among the Young” showed that fewer than 33% of young adults from 20 to 30 years of age have a basic knowledge of interest rates, inflation and how to control investment risk. The survey showed that though people are willing to learn, they are not educated on basic financial issues.

If you count yourself as one of the millions of Americans who has a lot to learn in terms of finances, then do your own research. Here are some tips about managing your finances. Even a basic understanding can make a huge difference later on up the road.

Your budget is key

You may be tired of hearing about the budget, but the budget is Number One when it comes to finances. You have to know how much money you bring in, how much you put out, and the surplus or deficiency that generates every month. The easiest way to do this is to either write everything down in a notebook or find some online software that can help. Mint.com is a website where you can keep track of your own budget. Once you figure out whether or not you have a surplus or deficit at the end of your accounting period, you can start cutting back on unnecessary expenditures.

Build up savings

Your parents were right: Cash is king. Parents in generations past knew you had to put money aside. Along the way, we forgot the value of saving, and though debt was the best idea. We started spending more than we really had. How do you fix that? Start saving again, just like your parents did. The best thing is to take a percentage from each paycheck and put it away before anything else.

It’s not always wise to use credit

Credit-card debt is a huge expense for a lot of families, and it can cause enormous problems. The best things to do with credit cards, is to use the buggers for occasional small purchases. Pay them off right away, as you don't want those hyenas to get their hooks in you. Costs of credit are FAR too much to have any kind of balance for long. You might have a low interest rate, but you're paying more than you would if you'd have used cash.

Plan for retirement

The Roth IRA is a great retirement-planning tool. It’s a flexible and tax-free retirement plan. Normally every workplace has some type of IRA available and you should always take advantage of company matching. If your company doesn’t match your IRA, then stay with your own Roth IRA.

Insure yourself

For anyone with young children or other dependents, life insurance is a necessity. A general rule of thumb is to have enough life insurance to cover eight to ten times your current annual income. That may sound like a lot, but it isn’t. When you die, your loved ones, especially young children, will need money to get by. If you make $ 80,000 a year, for example, you should buy $ 800,000 of coverage. If your family has to live on that money for 15 years, before they can manage themselves, that's only $ 53,333 per annum.

Managing finances wisely

If we’ve learned just one thing from this recession, it is that wise decisions are key to surviving a tumultuous economic market. Though it looks like the economy is on an upswing, it doesn't mean by any stretch it's back to normal. People who were mired in debt before the recession hit don’t have the luxury of waiting to sort out their finances. It’s best to get into the hard work of picking apart spending habits and changing them as soon as possible. Your future, at least financially, hinges on it.

Tags: build up, finance education, handle finance, inflation, research, saving economic