Written by Mike Vaughn
You may have found yourself asking, 鈥渨hat exactly does financial literacy mean?鈥 Understanding the topic of money sounds simple enough, but its complexity depends on our goals. For everyday life, we only need enough to pay our bills and not be overdrawn by payday, but we may be able to do better than that by paying more attention to the ongoing struggle between our wallets and our bank accounts.
The odds of hitting the jackpot are 1 in 302,575,350, according to . Upon discovering this, most of us must find a different path to financial independence. The saying 鈥渟pend less, save more鈥 is a good start, but there鈥檚 so much more that we can do. We鈥檙e not going to go into the stock market here, but we鈥檒l cover some easy things you can start doing today, tomorrow or next week.
Why is Financial Literacy Important
A basic understanding of your finances can help you set financial goals, manage your credit and even determine which bank you should be using. Obviously, the sooner you figure out your finances, the better. We can ruin our credit in a matter of months, but it takes years to rebuild.
Credit Scores and Credit Utilization Ratios
You never know how important your credit score is until you鈥檙e making a major purchase.聽 Your credit score determines whether or not you qualify for that loan or financing; it also determines the interest rate you鈥檒l be paying.
It鈥檚 a good idea to keep your credit use below .聽 That is your credit utilization ratio, and it is calculated by dividing the total amount on all your credit cards by your total available credit. For instance, if you鈥檝e got a $1000 credit card, you鈥檇 want to keep your balance below $300. If your credit utilization ratio is above 30%, this can hurt your credit score, as this is the second biggest factor affecting your score next to payment history.
Setting a Budget
It鈥檚 also important to keep an eye on your accounts and track your spending because it鈥檚 easy to find your account overdrawn if you鈥檙e not careful. The best thing to do is create a budget. It doesn鈥檛 have to be too complex, but some way for you to see how much money you鈥檝e got coming in and how much money you鈥檝e got going out, and when. With this information, you鈥檒l be able to plan how to use your money more efficiently. Once you see where your money is going, it鈥檒l be easier to fine-tune your spending and set financial goals.
There are a lot of resources online for information and you can use. With these financial management tools, you will easily be able to manage your money, manage your debt, and manage your credit.
A good method to follow is the 50/30/20 budget rule. That is 50% for essentials, 30% for personal spending, and 20% for savings and other financial goals.
Financial Literacy for Saving
Be sure to make savings a part of your monthly budget, no matter how small the amount. It鈥檚 important to keep your savings out of your checking account. Also, don鈥檛 confuse your wants with your needs.
An emergency fund is another good idea, but only dip into it in case of emergency, such as job-loss, medical emergencies, emergency home repairs, vehicle repairs and things of that nature.
It really is never too early to start saving for retirement, so try to get into a 401(k) program as soon as you can. Ask your employer or your bank about getting started, and they will walk you through your options. It鈥檚 also recommended that when you get a raise, increase your retirement savings, too.
Other Things to Know
Be aware of interest rates for credit cards, loans, and even savings accounts, as some are better than others.
A good method for tackling debt is to pay off smaller bills first and getting them out of the way. Follow that up by attacking your higher interest credit cards or loans.
It might also be a good idea to adopt a cash-only diet. This curbs spending and makes your money a lot easier to track.
On a final note, it can鈥檛 be stressed enough that the more you learn about financial literacy, the closer you will be to reaching your goals.
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About 天美麻豆
天美麻豆 is a career training school that specializes in trade vocations including Auto Technician, Heating, Ventilation and Air Conditioning (HVAC), Building Maintenance and Repair and Welding. The school offers professional facilities, knowledgeable instructors, day or evening classes, job placement assistance, and is accredited by the Commission of the Council of Occupational Education (COE). 天美麻豆 is certified to Operate by SCHEV. Learn more at聽tidewatertechtrades.edu聽or like them on Facebook at聽.