April is Financial Literacy Month. I think about how important money management is, not only to financial health but also to general happiness and well-being. Marriages are ruined by careless and selfish spending; credit scores lowered by unpaid debt; college graduates struggle to make loan payments after credit-fueled spending sprees. One explanation for these behaviors is that these people suffer from “financial illiteracy.”
Financial illiteracy is simply a lack of familiarity with the principles of money management and finances in general. We live in a culture of spending. Even if we don’t have the cash, there are always credit cards to fall back on. Taking charge of your finances is not difficult. Here are some steps you can take to get started:
1. Assess your situation
Take stock of your income, bills, and savings.Track your spending. If you don’t know where all your money goes, you’re not alone. The truth is that may people spend in small increments and don’t keep track of how it all adds up.
Create a baseline budget. Set up the absolute minimum required for food, shelter,
2. Change Your Spending Habits.
So many of us are impulse spenders. Good deals, minimum monthly payments, and credit cards all make it easy to buy that item that would otherwise seem too expensive. Unfortunately, that item probably IS unaffordable. If these offers tempt you, use your budget to regain control.
Be clear about the difference between your fixed expenses (mortgage, rent, utilities, insurance, loan payments) and what is left for discretionary spending. Then, take a critical look at how you allocate those discretionary funds.
3. Commit to a 52-Week Savings Plan.
There are two kinds of savings to consider – long term or retirement and emergency. Make sure that an emergency fund is an item in your budget and set aside a portion of every paycheck. The rule of thumb is that an emergency savings fund should cover three to six months’ worth of living expenses. Take advantage of any employer-sponsored retirement accounts. Even small amounts deposited on a regular basis will add up over time.
4. Use credit wisely.
Closely monitor your credit card use. The cards are so easy to use that many people tend to buy things they don't need. The worst way to collect a debt is with finance charges on credit cards. Try to avoid charging more than you can pay off each month.
5. Get Professional Advice.
You don't have to do this on you own. An experienced independent financial advisor can help you develop a financial management plan that is compatible with your budget, your current situation, and your lifestyle goals. An advisor can also identify specific problem areas and help you work out ways to move forward.
Developing strong budgeting and money management habits
Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.