The following article is part of "Real Money/Real Talk," a series presented by Chase Slate, and originally appeared on opens overlayBuzzFeed.
For a lot of people, money and credit is scary. But once you know the basics, you can opens in a new windowtake control and make smarter choices. The key to being financially empowered is understanding how money and credit work, but we don't always learn about these things in school.
Here are nine key terms and concepts that you should know to get on the path to financial independence:
1. How much of your income should you be trying to save per month?
"In general, you should strive to save at least 15 percent of your income per month," says Mical Jeanlys, general manager of the Chase Slate credit card. "Consider setting up a direct deposit of 15 percent of your paycheck into your savings account to make the process as seamless as possible." However, if 15 percent of your income isn't realistic, Jeanlys says to "pick a opens in a new windowsavings amount that works with your budget." Even $25 a month will start to add up in the long run!
2. Define "take-home pay"
Your "take-home pay" is the amount of money you make after subtracting federal income tax, Social Security and Medicare contributions, any state or local income taxes, monthly health and dental insurance premiums, and 401(k) contributions. Knowing your take-home pay is incredibly important for budgeting—you want to make a budget with the money you actually bring home, not your total income.
3. Your emergency fund should be able to cover at least ___ months of expenses
"An emergency fund typically includes enough to cover three to six months of expenses," according to Jeanlys. If you can cover more than that, great! If not, get to saving. "Focus on costs, not income," Jeanlys advises. "All you need is a bare-bones calculation of items you absolutely need to pay. Start by determining how much you really need to get through a crisis and start putting away a little at a time to save toward that goal."
4. Define "credit score"
Your credit score is a measure of your credit worthiness and is calculated based on the information on your credit report. A good credit score is an indication that you are financially responsible and have a good track record of paying bills on time.
5. What number is considered a very good credit score?
Your FICO® Score can range from 300–850. The FICO® ranges are poor: 300–579, fair: 580–669, good: 670–739, very good: 740–799, and exceptional: 800+.
6. Who can use your credit report?
Your credit history can affect more than just your ability to get a loan. Property rental agencies, mobile phone companies, insurance companies, and employers can all use your credit report as well.
7. What is a "soft inquiry"?
"Soft inquiries occur when you check your own credit report, when your credit report is checked as part of a background check, or when a financial institution administers a pre-approved credit card/loan offer," says Jeanlys. "Soft inquiries do not negatively impact the score—so you should check your credit score regularly to stay on top of your credit health."
8. Define "fixed expense"
Fixed expenses are regular bills that cannot be easily changed like rent, student loan payments, or monthly insurance premiums. They're the bills you need to prioritize when creating a budget. Flexible expenses are more discretionary and are likely to change from month to month.
9. What's the "avalanche method"?
The avalanche method is a popular (and financially optimal) way to pay down debt. In the avalanche method, debts are paid down in order of interest rate, with debt that carries the highest interest rate being paid down first.