If the term “financial literacy” evokes frightening images of spreadsheets and number crunching for you, I get it. Financial literacy can seem intimidating, especially if you haven’t previously given it much thought. But did you know April is National Financial Literacy month? As we welcome a month that also ushers in spring, it is a great time to take a fresh look at your finances, reset your expectations and plans and look forward. Think of it as a bit of “spring cleaning” for your bank account. A chance of renewal, planting the seeds, and watching our finances bloom. Ok, enough of the metaphors. Let’s get down to it.
You might be asking, “What exactly is financial literacy?” And that’s a great place to start. By definition, financial literacy is a specific focus on your personal finances that helps you manage your money through various skills, budgeting and finance management techniques. In short, a financially literate individual will have a decent understanding of how best to manage their money, ultimately both staying out of debt and saving.
Seems simple enough of a concept, right? Perhaps, but it’s only attainable with the right knowledge, tools and discipline to get there. And unfortunately, many of us didn’t get much financial education when we were younger. It remains a subject that, in my opinion, is lacking in our classrooms during the intermediate years. However, it’s a lesson we learn, like it or not, in our adult years. Like anything in life, it takes constant attention and practice to get to where we need to be. So where to start?
It may seem overwhelming to dissect your own finances so for those just beginning, perhaps do a trial run and start small. Put together a weekly or monthly goal and tackle it. There are many ways to save small. For example, set aside a jar of loose change and watch it grow; only pull-out cash and spend what’s in your wallet and no more; put together a list of your monthly spending and have the rest automatically direct deposited into savings. Find the small wins and keep planting seeds from there. You can then start to understand your cash flow and set bigger goals.
Bigger picture, however, takes more diligence and discipline. The following are some key steps to take toward becoming financially literate:
Calculate your income
Set and stick to a budget
Account for where your money goes
Prioritize your savings
Understand credit cards
Protect your identity
Learn about your credit score
Save for retirement
Let us have some fun and break these down:
Know your numbers: Having a thorough grasp of your personal finances is the first important step. Calculate your income and your expenses. From there, you can set a realistic budget to stick to.
Keep a close watch on your budget: Understand where your money is going and make decisions based off your goals. There are many user-friendly budgeting tools to help you track your expenditures. Some great options are Mint or YNAB. Choose what feels most natural and more likely for you to stick to utilizing and tracking results.
Don’t forget to save: It’s easy (and ok!) to treat yourself to splurges here and there but staying disciplined and ensuring you are still putting money aside is vital to staying on track. Even when doing all the right things to stay the course, there’s going to be unexpected expenses that arise. Having a padding in your savings as protection is key!
Don’t let yourself be sidetracked by theft: Identity theft is rampant these days, particularly with us making online purchases. You can do all the above and meet your financial goals all to realize that one day, someone else derailed you by spending your money. Track your accounts, change your passwords often and be cautious who you are sharing your personal information with. There are some excellent resources on ways to ensure you’re protecting your personal information such as LastPass or Bitwarden.
Educating yourself on some key details is important, too. Learn about your credit score, including how to check it and how to improve or preserve it. Any major loan (i.e., school, house, car) will require a bank obtaining your credit score and assessing the risk of lending you money accordingly. Credit scoring models generally look at how late your payments were, how much was owed, and how recently and often you missed a payment. Having a financial plan to pay your bills both on time and in full will succeed in a higher credit score.
And while we’re talking credit scores, let’s talk credit cards. Credit cards can be a fast track to getting way off track. It can certainly be advantageous to utilize credit cards—some offer perks, such as airmiles or hotel points that can save you money—but educate yourself on both the benefits and the consequences. Make a plan to only spend what you have and pay off in full at the end of each month so as not to incur interest payments.
Last, but certainly not least, save for retirement. This one is tricky because as humans we are naturally drawn to instant gratification. You work hard! You deserve to enjoy the fruits of your labor. Just make sure to save some for later. Ensuring that you are planting the seeds for a fruitful future is essential. None of us want to work hard all our lives only to end up falling short at the end. This is important not only for your own happiness and security, but also for those around you who care about you and may have to eventually care for you.
Finances can certainly be overwhelming without a plan set in place. But it’s never too late to become more financially literate. What better time than National Financial Literacy month to dedicate some time to effect positive financial change! Even if it’s starting small while putting a bigger plan into motion. And just like with anything else in life, practice, dedication and purpose will not only allow you to break down the barriers and surprise yourself, but give you results that you will want and absolutely can stick to! So, begin planting those seeds and watching the “money tree” grow. The resources are at your fingertips and so too, are the results!