Take Control of Your Finances: Celebrate Financial Literacy Month with These Essential Tips!
Financial literacy is vital for everyone, as it involves having a working knowledge of money management. Without essential financial skills like budgeting, investing, and retirement planning, life can become much more difficult. Financial Literacy Month provides an opportunity to prioritize financial literacy and take advantage of resources to improve your financial situation now and in the future. Here are 6 tips to help you get started.
1. Create a budget: To make progress towards your financial goals, you need to know where your money is going each month. Creating a budget is a fundamental step towards managing your finances effectively. To create a budget, you need to track your income and expenses to see where your money is going. This helps you identify any unnecessary spending and prioritize your spending based on your financial goals. By following a budget, you can avoid overspending and make progress towards your goals.
2. Understand your DTI: Your debt-to-income ratio (DTI) is the total of your monthly financial obligations or debt divided by your total take-home pay. Your (DTI) is an essential financial indicator that helps you understand how much of your income is going towards paying off your debts. Ideally, your DTI should be 43% or lower, which means that you are living within your means and not taking on more debt than you can afford to repay. By knowing your DTI, you can adjust your spending habits and reduce your debt to improve your financial situation.
3. Improve your credit score: Credit is an important aspect of your financial picture. Your credit score is a numerical representation of your creditworthiness, and it affects your ability to obtain loans, credit cards, and other financial products. A high credit score can help you qualify for better interest rates, while a low credit score can make it challenging to get approved for credit. By monitoring your credit score and taking steps to improve it, such as paying your bills on time and keeping your credit utilization low, you can strengthen your financial profile.
4. Set up automatic savings: Allocate your earnings towards your savings goals, such as paying off debt, saving for emergencies, vacations, and retirement. Automating your savings is an effective way to pay yourself first and build your savings over time. By setting up an automatic transfer from your checking account to your savings account, you can make sure that you save a portion of your income each month without having to think about it. This can help you reach your savings goals more quickly and build an emergency fund to cover unexpected expenses.
5. Start an emergency fund: Put money aside for unforeseen emergencies. Experts recommend having three-to-six months’ worth of savings in an emergency fund. Even small amounts saved monthly can help. An emergency fund is a safety net that can help you weather unexpected financial emergencies, such as job loss, medical bills, or home repairs. By starting small and saving a portion of your income each month, you can gradually build your emergency fund over time and gain peace of mind knowing that you are prepared for any unexpected expenses.
6. Invest in savings and retirement: Consider options such as post-tax Roth or pre-tax traditional IRAs or an employer-sponsored 401(k) plan. Aim to save as much as possible and take advantage of any employer matching contributions. Investing in your savings and retirement is an essential aspect of building long-term financial security. You can take advantage of tax benefits and compound interest to grow your savings over time. It's important to start investing as early as possible and aim to save as much as you can to maximize your retirement savings.
Sources:
• https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-en-1791/
• https://www.themuse.com/advice/50-personal-finance-tips-that-will-change-the-way-you-think-about-money
• https://www.financialliteracy101.org/financial-literacy/index.cfm
Views expressed are as of the date indicated and are not intended to serve as investment advice, tax advice, a recommendation, offer, or solicitation to buy or sell any securities; they are based on the information available at the time and are subject to change based on economic, capital market, and other conditions. Any investment decision should be based on an individual’s own goals, time horizon, and tolerance for risk.
Prior performance does not guarantee future results and there is the potential for the loss of your capital investment.
Information and data provided have been obtained from sources deemed reliable but are not guaranteed.
