Kickoff Financial Literacy Month with Personal Finance 101

Personal Finance

Do you know how to balance a checkbook?

How about creating a monthly budget?

Do you make regular contributions to your retirement plan?

If you’re overwhelmed when it comes to finances, you’re not alone. Nonprofits in the financial industry like DebtWave exist because there are so many people, just like you, who were never properly taught personal finance basics.

Why does this matter?

Financial illiteracy has become such a common occurrence in the U.S. that in 2004 Congress designated April as Financial Literacy Month. The goal is to raise awareness for the importance of financial education and serious consequences that result from failing to understand personal finances.

Here’s the deal:

According to a 2015 survey from FINRA, nearly 20 percent of individuals in the U.S. reported that in the past year, their household spent more than their income. That figure doesn’t include those who purchased a big investment such as a home or a car. Additionally, the survey found 21 percent of individuals had medical bills that were past due.

Education is key when it comes to finances. Below we’ve shared a brief synopsis for three basic personal finance topics. Read on to learn more!

Kickoff Financial Literacy Month with Personal Finance 101

Personal Finance 101

  • Budget

A budget is a financial plan that takes into consideration income and expenses to provide an estimate for how you can afford to spend within a given time period.

To create a realistic monthly or annual budget, you’ll want to become familiar with the following terms:

  • Fixed Expenses:

Monthly expenses that never change like rent or your mortgage.

  • Flexible Expenses:

Monthly expenses that may change monthly such as electricity or other utility payments, groceries or credit card bills.

  • Total Expenses:

The combined amount you spend on your fixed + flexible expenses.

  • Total Monthly Income:

Income from your job or other revenue streams such as investment dividends, pensions, Social Security benefits and rental income.

  • Disposable Income:

Money remaining after subtracting taxes from your income.

Creating a budget is not a one-time exercise. Instead, view it as an adjustable, eye-opening experience in which you’ll learn where you spend your money and whether you are living within your means.

For example, you may learn your every-other-day triple shot mocha habit isn’t solely responsible for your overspending pattern. Instead, it’s your decision to order a Lyft instead of using public transportation that is causing you to overspend.

If you find you’re spending more than you earn, or if your budget is too rigid, review and re-adjust until you create a plan that works best for you.

  • Managing Debt

Most of us won’t learn hard debt-lessons until we experience a negative event and are either unable to afford minimum payments to pay off our credit cards, or we wake up one day and realize the size of our debt has seemingly ballooned overnight.

Credit counselors generally recommend consumers not use credit cards unless you can consistently pay off your entire bill every month. If you only allow yourself to pay in cash, it dramatically reduces your ability to purchase impulse items and engage in other overspending habits.

If your debt has become overwhelming and/or it has become difficult for you to pay off debt and other monthly bills, call a nonprofit like DebtWave for debt management assistance. Organizations like DebtWave negotiate with creditors (the people you owe money to) and are oftentimes able to lower your high-interest rates, giving you an actual fighting chance of paying off your credit card debt.

  • Savings

Set savings goals for yourself. Consider your five, 10 and 15-year life goals. Do you want to buy a home? Buy a new car? Travel to Tahiti? Retire by your 65th birthday? This will help you determine how much you need to save and by what date.

Especially for big-ticket items like buying a home, set smaller, short-term goals along the way to keep you motivated to save.

In addition to accomplishing financial goals you’ve set for yourself, saving to build up an emergency fund is also crucial. You never know when your car may break down or if your pet gets sick.
Savings Tip: Just like you pay your monthly bills, pay yourself a nominal fee each month, or each time you get paid. Put the money into your savings account. You work hard for your money, use your savings to make your money work hard for you.