Americans are notoriously bad with money.
In fact, a study released by the Global Financial Literacy Excellence Center last year found that only 22 percent of women and 38 percent of men passed a quiz on basic financial concepts. For people under the age of 35, the numbers were even worse.
Understanding the fundamentals of personal finance is important for your future and financial security. Financial Literacy Month is the perfect time to brush up on the basics and establish good money habits.
Financial Literacy Month
The U.S. Senate designated April as Financial Literacy Month in 2003. They created the observance to increase awareness about the importance of personal finance education and the consequences that come along with not understanding financial concepts.
Money Management International, a non-profit debt counseling organization, crafted a step-by-step guide for financial wellness. From debt repayment to building savings, they’ve created a detailed plan to help you get started.
Here’s what you can do each week during Financial Literacy Month to get your finances in order.
Week 1: Get organized
Financial wellness is impossible to achieve if you don’t know your starting point. Use the first week to organize yourself and get a full picture of your current situation.
List out all of your bank accounts, credit cards, student loans, car loans, retirement funds, and investment accounts. Make sure you and any other family members who manage finances know the log-in information and passwords for each online account.
If you’re not sure what accounts you have or if you can’t locate an old student loan or 401K, now’s the time to track them down. Visit AnnualCreditReport.com for a free credit report. It will list all of the accounts you have opened in your lifetime, including your loans and credit cards.
To stay organized, set up a financial work station in your home. Designate a folder, binder, or drawer for all important documents, pay stubs, tax returns, or receipts. Having one place for all things money-related can help you manage your accounts more effectively.
Week 2: Tackle your credit
In the second week, focus on your credit score, the accuracy of your credit report, and analyzing how much debt you have. If you haven’t done so already, get your free credit report and review it carefully. Look for inaccuracies or fraudulent activity, as these issues can significantly impact your credit score.
If your credit score isn’t where you want it to be, focus on making a plan to improve it. You may find you need to pay down debt to raise your score. If you have a bad habit of missing payments, setting up automatic payments can ensure you don’t miss any due dates. On-time payments can help improve your credit over time.
Once you have addressed the immediate issues, you can come up with a strategy for paying down debt that works for you, such as the debt avalanche or the snowball method.
Week 3: Think about savings
Nearly half of Americans can’t come up with $400 in an emergency, according to the Fed. If you fit into this category, an unexpected car repair or medical bill could completely deplete your savings. You may have to turn to credit cards, personal loans, or payday loans to fill the gap. As a result, you can end up deeply in debt with high-interest rates.
If you don’t have an emergency fund, now’s the time to open a new account and start saving. If money is tight and finding money to set aside seems impossible, don’t lose heart.
Consider signing up for a savings app such as Digit. Rather than depositing large lump sums, smart apps monitor your everyday purchases and can automatically set aside small amounts when you can afford it. Those little amounts can add up over time, helping you establish savings.
Week 4: Create a budget
If you run out of money each month and don’t know where it’s going, use this week to get a handle on your spending and create a budget. Set limits on non-essential spending such as entertainment and eating out. By cutting out little extras, you can free up more money each month for debt repayment or your emergency fund.
You may have to make hard choices, such as cutting back on cable, putting a ban on clothes shopping, or only eating at home. But making those changes can have a big impact.
Once you have a budget and you’ve made cuts to your spending, evaluate if your income is enough to meet your needs. If not, think about how to increase your earnings. You could ask for a raise, switch jobs, or earn money from a side hustle.
Getting your finances in shape
Getting your finances organized and creating a plan for your money can be overwhelming. But during Financial Literacy Month, you can break up financial management into small, manageable steps to help get you on track.
For more information about financial literacy, learn how to manage money like a pro.
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