Achieving financial freedom begins with knowledge and know-how, the underpinnings of financial literacy. Everyone has their own unique vision for what success looks like. And understanding options and learning to apply some key financial skills — from sticking to a budget and implementing a saving plan to gaining control of credit and debt — can be pivotal steps in learning to effectively manage money, stay on course, and navigate challenges along the way.

While knowing where to begin can feel daunting, prioritizing these personal finance principles can help lay the groundwork for ensuring financial security and realizing lifetime goals.

Read more: Time for a check-up: 7 questions to test your financial health

Learn to budget

Creating and sticking to a realistic budget is a fundamental, straightforward step to successful money management. Six in 10 people feel their income isn’t keeping up with inflation and the cost of living, and shrinking balances may indicate a tendency toward outspending earnings. There’s more to budgeting than just tracking spending though. Getting a handle on precisely how much money is coming in and where it’s going is an important step in learning to direct spending.

Budgeting isn’t a one and done exercise. As circumstances change, it’s important to make adjustments as necessary to help keep to a plan. The 50-30-20 budget rule, which splits household income into needs, wants, and savings categories, can provide a holistic view of finances and be a useful tool for balancing income and expenses while working toward short- and long-term financial goals.

Read more: How to manage a household budget

Kickstart saving

The earlier saving begins, the more time there is to maximize the power of compound interest or compound earnings. With the potential of compounding, not only do investments have the potential to grow, any earnings may also produce earnings. There are many types of investments to consider, including mutual funds, stocks, bonds, high-yield savings accounts, and exchange-traded funds. It’s important to compare options before getting started.

Along with setting aside money for big purchases, it can be beneficial to earmark savings for specific purposes: 

Retirement. Planning for retirement is essential to preparing for the future and building long-term financial security. It’s never too early to establish retirement goals and start saving for them. This might include opening a traditional or Roth IRA, or other type of account, and if available, contributing regularly to a workplace savings account. Contribution limits vary by account type, so it’s important to keep abreast of any changes.

Emergency fund. Life is full of unexpected events, and a dedicated emergency savings provides a cushion against circumstances like job loss, illness, or a big home or car repair, reducing or eliminating the need to dip into other savings or accumulate debt. Empower findings reveal that more than 1 in 5 (21%) Americans have no savings for unexpected financial events, and nearly 2 in 5 (37%) couldn’t afford an emergency expense over $400. While there’s no ideal number for emergency savings, saving enough cash to cover three to six months of expenses based on average monthly spending habits is a reasonable goal according to conventional wisdom.

Read more: How much should you have in an emergency fund?

Building credit

Credit scores are not a direct measure of overall financial health, but they do provide a snapshot of how well someone does with borrowing and paying back money. Common models like FICO and VantageScore assign credit scores from 300 to 850, with the average FICO score at 717 in 2024. The earlier the better when it comes to establishing and improving credit: Some industry specialists suggest starting as early as age 16 or 17.1

Maintaining a good credit score can have far-reaching implications — from maximizing borrowing power and landing favorable interest rates to determining insurance eligibility. Credit health can fluctuate over time, depending on age and financial history, so it’s important to monitor changes. Simple steps like paying bills in a timely manner, limiting revolving credit, and avoiding late charges can help keep scores up.

Read more: Who needs perfect? For credit scores, it pays to be in the ballpark

Managing debt

While avoiding debt is ideal, many people find themselves with some amount of debt at some point in time. But all debt is not created equal: It’s important to differentiate between good debt, like a home mortgage or student loan that can lead to higher earnings and net worth, versus bad debt, such as high-interest credit card balances. Typically, these are considered liabilities that represent depreciating assets.

Making a dent in debt will free up additional funds that can go toward saving for the future. There are different approaches for paying down debt, from the snowball method of paying off smallest to largest balances, regardless of interest rate, to the avalanche method, which prioritizes paying down debts with the highest interest rates.

Read more: How to pay off debt

Talk and keep learning

Empower research reveals nearly two in three Americans (62%) don’t talk about money, and one in three (34%) want to see more conversations about basic financial literacy. A financial professional can be a valuable ally to help jump start these conversations, gain greater financial literacy, and guide financial decisions. Asking some key questions can help with the process of identifying a good fit.

Read more: 10 questions before hiring a financial advisor