10 Commandments of Your Personal Finance Bible

Here is a list of ten essentials to educate you step by step and help you begin your personal finance journey.
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Generations have come fresh out of the college -- lugging their curiosity and innocence to major metropolitan centers. But when it comes to personal finance, they're vulnerable to a reality full of tricks and traps. It's important to pin down some practical survival skills to save them from the obstacles and booby traps in the financial wild.

You're okay if you don't have a college accounting degree

You're okay if you don't have a college accounting degree

Those who didn't go to college for an accounting degree may have less finesse about managing their personal spending and savings. Gaining personal finance basics by searching on Google or asking people around who have more life experience could be a straightforward way for amateurs to start, yet in terms of sketching out financial plans for your future life, you probably want to have handy access to the brass tacks to help you make better decisions.

Here is a list of ten essentials to educate you step by step and help you begin your personal finance journey. You may still not be a CFA eventually, but at least you learn how to be organized by spending money in a smart and rational way.

Also See: 25 Best Cities for New Grads

Your Salary Isn't At Face Value

Your Salary Isn't At Face Value

1. Your Salary Isn't At Face Value

It is certainly an epic moment when you receive your paycheck for the first time of your life. But, you have to know that the amount of your bi-weekly earnings doesn't necessarily mean the amount you are taking home. Instead, the amount is deducted by the payroll taxes before you obtain your true net income.

"When I first got my paycheck, I was 18," says Joshua Howard, 39, a master's graduate from Pratt Institute. He was surprised how little he actually earned, yet says "those deductions made me be aware of how much money I really made; I tried to eat out fewer times a week."

Payroll taxes usually include federal income tax, Social Security tax (up to 6.2%), Medicare tax (1.45%), additional Medicare tax (if you earned over $200,000, you would have to pay 0.9% on your wages), state income tax, and various local taxes (for example, if you live in big cities like New York).

Don't be upset by the after-tax revenue. You can file your tax return normally starting in early spring to the IRS before April 15 every year to get a tax refund.

Also See: Want a Higher Than Average Pay Raise? Move Here

Debit Cards Could Be Bittersweet

Debit Cards Could Be Bittersweet

2. Debit Cards Could Be Bittersweet

Since a debit card connects with your bank account where you deposit your money, having one basically forces you to use only the money you have already had. That limitation is positive: it allows you to buy things without incurring debt and tells you what your financial status is. When you don't carry cash with you or you want to order something online, using a debit card is a convenient option.

But always keep in mind that debit cards could be a scary story due to their weaker consumer protection, and remember there are also occasions where debit cards are not recommended. Other than that, don't forget your PIN.

3. Your Account Statement Is Your BFF

Once you have a debit card and a bank account, it's vital to check your bank statements online on a daily basis to make sure that no one but you is using your debit card. In addition, the statement gives you a basic snapshot of where your money went.

How to read your bank account statement? Since all the bank statements have a similar format, it's always good to start with the summary, which shows you your balance, activities like deposits and withdrawals, checks and fees.

Dr. Stephen Lesavich, an attorney at Lesavich High-Tech Law Group, P.C. and co-author of the book The Plastic Effect: How Urban Legends Influence the Use and Misuse of the Credit Cards (Coconut Avenue, 2012) suggests exporting your statement into a spreadsheet to make a graph is a good way to find out where your financial status is. Meanwhile, "you have to be aware of anything that you are being charged for," he added.

When logging into your online bank account, double-check your Internet connection and computer security. If you find that anything related to your personal information is disclosed or suspicious, call customer service at your bank as soon as possible.

Don't Get Addicted To Your Credit Card

Don't Get Addicted To Your Credit Card

4. Don't Get Addicted To Your Credit Card

Since the 2008 financial crisis, whether or not to have a credit card has been a hot-button topic. But every coin has two sides, and so too is it with credit cards. That's why you have to think carefully about the pros and cons of having a credit card without falling into a debt trap. Credit cards could be a helpful way to attain a healthy credit score if you pay your bills on time.

Commercial banks usually customize diverse credit card options for their clients, depending on their consumer behaviors. For instance, foodies may spend time exploring restaurants, shoppers would like to collect discount information about grocery items, and frequent travelers would prefer getting rewards from airlines.

For Millennials perhaps on their first credit cards, it's ideal to start low-key. "It's better to stay with two or three credit cards from big brands like Visa or MasterCard in the long run, instead of getting credit cards from department stores and jumping from rewards to rewards," says Jason Gordo, CEO of FlexScore and co-author of the book FlexScore: Financial Advice for the Rest of Us (Fat Donkey Publishing, 2013).

Also See: How to Get Your First Credit Card

5. Credit Score Plus Credit Report Are Your Safeguards

Following Step 4, after you have a credit card, you may need to be aware of your credit score, which directly reflects your creditworthiness -- a factor that may affect whether you are qualified for getting jobs, purchasing cars, applying for a mortgage.

Also See: Why Your Credit Score Just Changed and How It Will Impact Your Ability to Get a Loan

A credit report, also called a credit history or credit file, is an expanded run-down of the credit history (based on your ability to pay back loans and debts) that informs your credit score. The three nationwide consumer credit reporting companies, TransUnion, Equifax, and Experian can provide you with free credit reports every year.

Keep your eye on your credit report "at least once a year, since it's free," says Lesavich. When noticing abnormal or illegal activities in your credit report, you are able to inform your bank or credit card company immediately.

In response to how to improve credit scores, Gordo said, "Stop charging your things on your credit cards for everything you pay -- don't put yourself in a position where you can't afford the debt." He also suggests that getting a prepaid credit card and setting up a limit on the card could be helpful.

Invest in Your 401(k) ASAP

Invest in Your 401(k) ASAP

6. Invest in Your 401(k) ASAP

Retirement sounds far away from Millennials' current lives, yet it is necessary to begin now and make some investment for future benefits. "The younger generation tends to go out a lot and spend money," says Andrew Meadows, consumer brand ambassador at The Online 401(k), "But for college graduates, the earlier they enroll 401(k) plans, the better for them to be beneficial."

Meadows suggests that it is extremely meaningful for college grads to choose employers that have better benefit match programs before they start their first jobs, rather than merely chase after the opportunity with a decent salary. It is a good rule of thumb to contribute at least as much as the company match amount to your 401(k), otherwise, you're leaving money on the table.

You Have More Than One Choice on Health Plans

You Have More Than One Choice on Health Plans

7. You Have More Than One Choice on Health Plans

The Affordable Care Act requires everyone to have health insurance. In general, there are four scenarios for Millennials:

  • For 20-somethings, you can be covered by your parents' plans before turning 26.
  • If you are a college student, you are covered under a school-sponsored plan before your graduation.
  • For individuals who are not in the workforce, you may want to have a short-term plan to get insured temporarily.
  • Employer-based health insurance would be a perfect choice for professionals.

The most common types of health plans including HMO, PPO, EPO, and POS. The simple run-down is as follows: HMO (health maintenance organization) is a type of plan that has relatively low monthly premiums and low-cost sharing; PCP (primary care provider) requires referrals and doesn't charge you for care out-of-network except in emergencies; PPO (preferred provider organization) provides you with a network of providers you prefer to use without paying for out-of-network care; EPO (exclusive provider organization) means you are covered by a network of providers exclusively, which means that you don't have the flexibility to change your network beyond the list; and POS (point of service plan) is similar to HMO but less restrictive in certain cases, you can get care out-of-network, but you may also need a PCP referrals.

Beyond that, a health savings account is also an option for you to have.

8. Life Insurance Could Be Your Shelter

Unlike health insurance, life insurance is not something mandatory, but "it ensures that your loved ones are provided for financially should you pass away prematurely," says Jonathan K. Duong, president at Wealth Engineers, LLC.

It only applies to people who have financial responsibility to support someone else, a spouse or child, for instance; life insurance is long-term protection.

It's also a good idea to get life insurance if you have debts you owe, like student loans or an outstanding mortgage.

If you fit into the profile of someone who should buy life insurance, how much should you buy? A good rule of thumb is seven times your annual salary? So if you make $45,000 a year, get $315,000 of life insurance.

Since the expense of life insurance is based on various factors such as age, gender, health situation, whether or not you have a family illness, it would be cheaper and more beneficial if you could start having it when you are young and healthy, and more importantly, when your budget allows.

Dustin Giannangelo, financial advisor at Fusion Wealth Management, suggests, "The older you become the more expensive [it is] to pay for it."

Different insurers have various policies and rating systems, as a result. "People should research multiple carriers when they are buying life insurance to find the ideal one with an affordable and reasonable price," Giannangelo added.

In short, you have the option to choose term life insurance, which is cheaper. Just make sure you're covered until your dependents are out on their own or you start getting your retirement benefits.

Another option would be to get a convertible term policy, which allows you to change over down the road to a permanent life insurance policy -- like whole life or universal life.

Rent or Buy Is A Tough Decision

Rent or Buy Is A Tough Decision

9. Rent or Buy Is A Tough Decision

Should we pay $1,200 per month for a rented studio in New York City or spend more than half of our salaries as the mortgage payment to the bank? That's a question.

Unlike our parents' or grandparents' generation, who spent their entire life working at single company and living in the same town, "Nowadays, our lifestyle has changed, people move and travel all the time," says Brendon DeSimore, author of the book Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling (Changing Lives Press, 2014). As a result, he advises that those in the younger generation figure out what they really want from their lives.

"If you need freedom, want to be flexible and don't' want to be tied down, renting is a better choice," he said. Also, for people who have had intentions to settle down and committed to living in a city, he suggests that staying in touch with your mortgage experts would be helpful for you to keep updated with good home purchase opportunities.

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10. Technology Brings An Extra Bonus

The advantage of living in a technologically-saturated era is that there are numerous websites and phone apps that we can adapt to our daily lives. To track your expenses, personal finance tools like Mint.com, You Need A Budget, MoneyDance, can turn you into a money management guru.