April is Financial Literacy Month. Although it seems strange to talk about money and literacy in the same sentence, the intent is to increase awareness and competency in the financial area. In the beginning, Financial Literacy Month started as a way to reach out to kids to teach them the basic financial skills many were found to be lacking in when they graduated from high school. It has expanded over the years, to include reaching out to everyone to help sharpen up those skills, where we could all use a little help.
I have read so many books, articles, and blog posts on budgeting, planning, retirement, and credit. I can save you a little bit of time, they all boil down to what I call seven laws of financial freedom and three of them are about saving!
Make More Than You Spend
Our grandparents would call this living within our means. If you don’t have the cash, you can’t afford it. Sometimes the problem with our budgets isn’t that we have too many expenses; it is that we truly do not have enough money. There are times we need to see what we can do to figure out how to use our strengths, to figure out a side hustle, part-time job, or extra work to contribute to our bottom line.
Pay Yourself First
This seems contradictory at first, but too many times we say we will save after we pay the bills and spend on what is “necessary,” and then there is nothing left. If saving is automatic and happens before pay even hits the bank account, you will never even miss it. Just $20 a pay period can make a big difference ten weeks down the road when the car needs repair work.
Build an Emergency Fund
Again with the saving…an emergency fund of $500 can mean the difference between needing to use credit cards, an advance in pay, or worse, a payday loan (DON”T DO THIS!). A car repair of $250 could easily turn into an expense of $1,000 or more through fees, interest, or a credit card cycle due to lost pay for the next month. Did you know that 46% of Americans say they would not be able to cover an emergency expense of $400 without borrowing or using credit? (Washington Post, May 25,2015)
Don’t Carry Consumer Debt
Most financial advisors recommend that if you have credit cards that the balances are paid off at the end of each month, essentially using the cards as a interest free loan. I am not sure how many people are actually disciplined enough to do this. I know my family struggles mightily with this rule. But the expense of carrying consumer debt easily is one of the most unnecessary expenses anyone has in their budget.
Max Out Retirement Options
Contributing to workplace retirement plans, Traditional or Roth IRAs all allow you take advantage of magic. What is this magic? Compound interest: earning money that is earning money that is earning money. Plus contributions to TSP or 401k are tax deferred, meaning they reduce your taxable earnings now and save for your future.
Know Where Your Money Goes
You cannot manage what you do not measure. If there is no tracking system, budget, spending plan, whatever you call it, in place, it will be impossible to know for sure where you stand financially. It can be painful to stare those numbers down, downright scary sometimes, but facing those demons is the first step to slaying them.
Plan For Fun Spending
Time and money must be set aside for fun. Working hard toward goals is important, but just as important is ensuring that you and your family stay motivated. This is a foot march to Baghdad from Kuwait, not a PT run with the Brigade Commander. You must take time for care and hygiene, and by that I mean please make sure you plan a little fun every once in awhile in your budget, and don’t feel guilty about it. It is just as important to feed morale as it is to feed bodies.
So, there you have it. My summary of just about every bit of financial advice I have ever read. Sure there are pages and pages that can be written about each piece, and a step-by-step guide for each, but if we can get the basic concepts down we are well on our way.
What financial topics do you want to know more about?