Financial literacy is knowing how to make smart decisions with your money. And sadly, few Americans understand how to budget, manage their credit cards, and save and invest for big goals like that first home or retirement. For example, a recent survey of adults showed that only 50% of the 28 basic money questions on his TIAA Institute-GFLEC Personal Finance Index for 2022 could be answered.
The US Commission on Financial Literacy and Education has issued five building blocks of financial literacy (“My Money Five”).
• obtain. Your ability to earn a living for decades is probably your greatest financial asset. Take the time to understand how salary and benefits can become the backbone of your long-term financial planning. You need to understand how various deductions and withholdings reduce your take-home pay such as federal, state, and local income taxes, Social Security taxes, Medicare taxes, and employer-provided health insurance payments. Make sure you’re using your employer’s matching contributions to your 401(k) account. This is because it can mean faster and bigger retirement payments. And don’t forget to invest in your future in education and training opportunities both inside and outside the job.
• Save and invest. Everyone should have financial goals for the future, such as buying a home or financing their retirement needs. First, you need to pay yourself first by opening an account with a bank or credit union and setting aside some money for the future before writing any other checks. Best for:) Budget and track your spending so you can save and invest, whether it’s a tax deferred retirement plan, a tax-advantaged Roth IRA, or a taxable brokerage. It helps you identify how much you can afford. account. There are good reasons to spread your assets across each of these account types. And with the power of compound interest, even saving a small amount initially can lead to a big nest egg.
• protect. Life is full of unexpected surprises, like a sudden job loss or the death of a family member. Often these emergencies can be financially devastating. Make sure you’re protected by setting aside up to six months of emergency savings for non-discretionary living expenses and keeping them in relatively safe, liquid funds. Any excess Emergency Savings can be transferred to a ‘Long Term’ Investment Account at any time. Be sure to keep your financial records in order and watch out for scams and scams. If you have dependents, make sure you have adequate insurance (including medical insurance) in case the unthinkable happens.
• pay. Take a breather before making your next big purchase. Is this item a “must have” or a “nice to have” item? Can it be purchased with cash (i.e. can you live within your means) or will you be paying interest for years to come? do you plan to pay? It’s always good to compare options and prices before buying that shiny new object.
• borrow. There are times when you have no choice but to go into debt, such as to buy a house or raise funds for your education. Not all debt is bad — the key is knowing how to manage it. Taking on a moderate level of debt helps increase wealth by maintaining liquidity and growing investments. Borrowing makes sense if the purchase can be tied to an improvement in net worth. Acquiring new employable skills, investing in side hustle and building a home fortune are just two of his examples.
If you are making an investment or making any other financial matters decision, we recommend that you consult a qualified professional. Many professionals call themselves ‘financial planners’, but be aware that they may be more focused on selling financial products than providing unbiased advice. . Before hiring an advisor, ask for a description of the services offered and fees. You can also verify your investment advisor’s credentials by contacting your state’s Department of Consumer Protection, the Office of the Attorney General, or the agency that issues the license and certification your advisor claims.
If you’re falling behind on this checklist, keep that in mind. You don’t have to do it all at once. Pick one or two pillars of financial literacy and work on them one at a time. Soon you will feel more confident in your ability to manage your money, and it will work more powerfully to help you reach your lifelong goals.
The opinions expressed in this material are for general information purposes only and are not intended to provide specific advice or recommendations to any individual.
Bruce Helmer and Peg Webb are financial advisors to the Wealth Enhancement Group and co-hosts of WCCO’s Sunday morning 830 AM “Your Money”. Email Bruce and Peg to firstname.lastname@example.org. A FINRA/SIPC member, he securities offered through LPL Financial. Advisory services provided through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.