Did you know that April is Financial Literacy Month? The goal of this month is to help people make sound financial decisions so they can achieve financial stability. The best way to accomplish this is through financial education.
It is estimated that more than half of Americans lack the budgeting skills and discipline necessary to pay bills on time, pay off debt, and set a plan in motion for the future. This challenge reaches across all generations and socioeconomic levels.
This lack of financial awareness can certainly have ramifications in the future, as less and less people are prepared to pay off debt or save for retirement. Poor financial practices also put people more at risk of falling victim to scams and predatory lending, which could lead to additional financial hardships.
Whether you are well-versed in personal finances or just beginning your journey, here are some helpful tips and resources on how you can improve your financial skills to ensure a stable and successful future.
Stick to a Budget
Setting a budget can be hard work. It takes time and dedication to determine exactly what you’re spending and how you can make improvements.
A good budgeting goal to aim for is spending 50 percent of your income on needs, 30 percent on wants, and 20 percent on savings and debt repayment. Although these percentages may vary according to individual, they are ideal numbers to work towards.
Once you have a budget, sticking to it can be the most difficult part. However, tracking every expense and allocating money every month for savings is what will ultimately help you make wiser decisions. When faced with the choice of spending money on a new TV or going on mini vacation, you will easily be able to identify whether or not you can afford it.
To learn more about creating a budget, click here.
Pay Down Your Debts
Paying down your debts is a sure-fire way to ease future financial strain. According to recent surveys, 38 percent of U.S. households have $16,000 in credit card debt. If you are frequently using a credit card for non-essential purchases, it can be tempting to continue charging items to it, without putting any thought into how you are going to pay it back. While having credit cards can be helpful, especially if you are trying to build credit, having an excessive amount of credit without the capacity to easily pay it down, can negatively impact your credit score and spending power.
It is much more important to stay within your financial means so you keep your credit score in-check.
Have an Emergency Savings
If the financial crisis related to COVID-19 has proven anything, it’s that Americans need a backup plan; they need an emergency savings set aside specifically for tumultuous times. An emergency fund is just that: money set aside that is only to be used in a true emergency, such as being temporarily laid off or having an unexpected expense.
To calculate how much money you should set aside for an emergency, add the amount that you have budgeted for your monthly expenses and debt payments, and times it by three. Typically, you will want 3-6 months’ worth of your true expenses and debt payments saved, so that you have enough cushion to get through a few months of not having an income.
Think About Your Long-term Goals
Now it’s time to start thinking about your long-term financial goals, such as purchasing a dream home, starting a college fund, or investing in the stock market. Once you have your goal(s) in mind, determine how much you need to put aside each month in order to reach your goal(s) and start saving now! It’s good to have short-term goals, but having goals that reach across a few years will help you make better decisions now.
Another long-term goal that many people forget to consider is retirement. Retirement is something that everyone needs to be thinking about to ensure a secure financial future. To learn more about saving for retirement, click here.
Educate Your Kids
It is so important that adults receive the proper knowledge to be financially literate, and it is equally important that kids, teens, and young adults also understand what it means to make sound financial decisions. There are plenty of resources to help, such as Junior Achievement and MyMoney.gov. By educating younger generations, we are setting them up for successful spending and saving habits.
The best thing you can do for you and your family is to stay educated. Even though you may not see a substantial impact at first, that slow progress will eventually result in you feeling better about your finances and creating a better future.
Are you wanting to learn more about how you can utilize your finances to create a more stable future? Contact us today!