“Primary goal is to help Americans understand the importance of saving and investing for retirement and creating generational wealth, as well as to educate Americans on how to take those first steps toward making their financial and life goals a reality.”
Most Americans believe they are financially literate, but surveys show few actually are. Increasing debt and a lack of retirement savings show there’s a need for financial education.
No matter your age, financial knowledge and a solid financial plan will help you navigate different stages of life. It can help you reach financial freedom, budget to buy a house, start a family and save for your children’s college education.
One of the primary reasons more Americans don’t become wealthy and don’t reach financial freedom is they’re afraid – not of being wealthy and financially free, but of the changes in their lives they’ll have to make to get there.
There are three important steps everyone should make to improve their financial circumstances:
Manage Your Debt
Create an Emergency Fund
Save and Invest 15% for Retirement
There’s a saying: “We don’t see the world as it is. We only see the world as we are.” The financial results Americans are experiencing are a reflection of their internal financial framework or mindset. When you change your mental blueprint and financial self-image (a.k.a. your mindset), you transform external results. As John Maxwell says “You’ll never change your life until you change something you do daily. The secret of our success is found in your daily routine.”
Financial literacy and education are essential personal skills and knowledge. Focusing on education and financial literacy – from a young age are paramount. In a consumer-driven economy, it is important to recognize the benefits, as well as the challenges, that money presents. For example, first-time credit card users may not understand compound interest rates or the consequences of bad credit until it is much too late. Learning the true value of proper budgeting, credit worthiness, debt, taxes and smart money management early, along with saving for retirement, is the foundation for a lifetime of good financial habits.
For our purposes, financial literacy is defined as the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.
According to Forbes, 33% of American adults have nothing saved for retirement and 44% of Americans don’t have enough cash to cover a $400 emergency. That’s one medical bill away from a financial headache. Although, it’s avoidable stress with a little planning. The first step to becoming financially literate is understanding money.
Money is a measure of value. So if you add more value at your place of work, you can justify earning a higher income. Embracing a value-based mindset can help you focus on increasing your value and income. Since, the financial choices you make today will compound. But many of us don’t know where to begin.
You need to understand how money, financial markets and our economy work. Learning how to manage money is vital with any good financial education. Personal finances have a huge impact on your future.
It’s important to make money management and financial literacy an essential part of your K12 and college education. By making it a part of your education, even when you’re not majoring in money and finance, will help you better understand and gain control of the basics of your own financial life.
“Most American’s spending habits are based on the amount of available credit they have, not on their cash flow (income) or checking account balance.”
7 Financial Education Tips – seven money and investment lessons:
Americans rank their finances as the No. 1 cause of their stress. Not surprisingly, there is also a lack of financial literacy in this country. During Financial Literacy Month, these tips will help you prepare for a financially successful future.
Your Money Mindset – It’s important to understand your emotions, thoughts, behavior and habits with respect to money
Build good credit – Good credit starts with borrowing, and that taking on a little debt can actually be a good thing. But buyer beware — credit card companies start with teaser rates, but they can skyrocket to double digits. Remember compound interest? It is awesome for saving, but it works against you when borrowing. “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” Albert Einstein
Borrow wisely (Debt) – It’s important to learn and understand how to borrow wisely. A good credit score will help you get a better rate and pay less interest over the course of the loan. Understand the difference between “good” debt, which is an investment toward your futures (think a mortgage, or student or small-business loans), and “bad” debt, which is credit cards or a car loan. When borrowing, shop around for interest rates before buying. Never exceed what you can finance with the idea you will get a big raise or another job.
Avoiding Taxes Legally – utilize tax avoidance strategies to legally lower your taxes. No one should pay more in taxes than they are legally required to pay
Budget, budget, budget – Controlling their spending means assessing where their money is going. Get in the habit of giving ‘each dollar you earn a job’ and tracking your spending by building a budget. Having a budget will allow you to realize where you can cut costs to start saving and investing additional assets toward your future. Occasionally, splurging is OK, but ALWAYS live below your means — There are a lot of things you can spend money on without even realizing it. Think overpriced lattes, new cellphones, designer clothes, Hulu, etc. — it all adds up. While you can treat yourself occasionally, make sure their spending isn’t controlling you. If you cannot pay down their credit card every month, it means you are living beyond their means. It’s important to take a step back and assess what really matters to you. Before swiping your credit card, you should ask yourself if you really need said thing.
Invest early and often for Retirement– Saving for the future, whether it’s for a car, a home or retirement, probably seems like the furthest thing on a kid’s mind. But starting early will allow you to experience the benefit of compound interest. This is the “snowball effect,” where interest is earned on money previously earned as interest. When you invest early and often, you can fully realize the benefits over the long run. Moreover, realize that investing isn’t gambling – In recent months, we saw a real frenzy when some traders tried to play casino with the markets. However, you need to understand that investing isn’t gambling. It’s okay to play trader with a small portion of their savings — say 5%. Gambling means you could lose everything. Sometimes it’s a good lesson learned.
Keep an emergency fund – As the pandemic has shown, you never know what the future holds. Millions of people lost their jobs and have spent months looking for new ones. You should learn from this the importance of always having a separate ‘rainy day’ fund that will cover six months of your expenses or liquid alternatives you can tap into in the event of an emergency. Having an emergency fund will serve as a safety net. It’s also important that you know the difference between investments and your cash. Set aside some cash for everyday living expenses and larger upcoming purchases.
Question…If someone gave you $10,000 today, how would you use the money? Would you use it responsibly on essential expenses or squander it on discretionary spending.
Budgeting is the foundation of money management. Fidelity Investments recommends a four bucket approach to budgeting your earned after tax dollars:
50% to essential expenses
15% to retirement (long term goals)
5% to savings (short term goals and emergency fund)
30% to nonessential discretionary expenses
Investing can be confusing and intimidating. But, with knowledge, it does not have to be.
Consider these five points provided by USAA to chart your financial course for this upcoming year and beyond:
Enduring priorities are … enduring. While 2020 was unique, it also triggered many of us to reassess what’s truly important in our lives. Our priorities provide lighthouse-like guidance as we assess our financial decisions, big and small. How have your financial goals weathered the storm? Have you or should you make some course corrections?
Start early and keep at it. An October 2020 Charles Schwab survey of Boomer Veterans indicated respondents had accumulated an average of nearly $1 million in retirement savings. Not surprisingly, they shared a common strategy: They leveraged time. One-third started planning and saving for retirement in their 20s, and a total of 70% were well on their way by their 30s. That’s a tip to share with those you influence and mentor.
Put it in writing. A written financial plan that articulates your meaningful goals and an action plan to achieve them is a key element on the path to financial security. However, only 39% of the Veteran respondents in the Schwab survey had one – and this is a group that grew up and lived in a world driven by plans. In today’s complex and ever-changing landscape of taxes, benefits, health care and, of course, the markets, a written plan provides a foundation from which to operate during tumultuous times. Now may be the time to craft your own.
Check your emotions. It’s hard to understate the influence of emotions on our decisions – financial and otherwise. While eliminating them as an influencer is improbable, it is important to recognize they’re in play and mitigate their role in your decisions. With nearly a year behind us, it’s easy now to look back at the Coronavirus Crash of last February and March and recognize cashing out wasn’t a great decision. A better use of your energy is to create a decision-making framework to help you make a better decision next time, because there will be a next time.
Opportunity to give back. Speaking of mentorship … taking off the uniform can be a daunting task. Nothing can help ease the transition to civilian life like a mentor who has walked the path before you. Consider sharing your valuable experiences with a separating service member by signing up with an organization like American Corporate Partners or Veterati that allows you to share your life lessons with those who are looking for that next meaningful career as they transition out of the military
