Financial awareness plays a huge role in enabling us to achieve many of our life goals. How we manage our finances impacts our ability to pay for everything from everyday expenses like rent and utilities to long-term, aspirational goals like home ownership and retirement. But managing our finances, and knowing what actions to take and when to take them, can be difficult without a sound base of financial awareness.
Wouldn’t it be nice if there was a day set aside every year that was designed to help people learn more about how to manage their finances effectively? Well, it turns out that National Financial Awareness Day, taking place this year on August 14, is just such a day.
In this post, we’ll take a look at four key action items you can do to strengthen your financial future on this day dedicated to increasing financial awareness:
Educate yourself about personal finance
The greater your financial knowledge, the more tools and strategies you’ll have to guide and shape your financial future. There are lots of ways to learn about personal finance, including books, podcasts, community-sponsored courses, and more. Experts recommend focusing on three key topics:
- Budgeting — learn how to track, prioritize and manage spending
- Credit management — study techniques for using credit responsibly and building a strong credit score
- Investing — discover how you can put your money to work building wealth over time
Let’s take a closer look at how you can act on these three key areas:
Create a budget
Having a budget gives you a way tostay on top of your income and spending. Understanding where and how you spend your money on a month-to-month basis will give you a great baseline from which to start. From there you can make more informed spending choices, and make adjustments as needed, while working toward your financial goals.
There are a number of budgeting apps available that can streamline and simplify the process for you. Three of the most popular budgeting apps include Quicken Simplifi, Rocket Money and YNAB.
Use credit responsibly
Credit can sometimes feel like the perfect Catch-22 situation: Without a credit history, you can’t get new credit, but you can’t build a credit history unless someone gives you credit. It’s enough to make your head spin. The good news is that once you do have a credit card or loan, you can use it to pave your way to future loans and other financial opportunities.
That is why maintaining a good credit score is so important. So, what can you do to build and maintain a strong credit score? Here are some suggestions:
- Make payments on or before their due date — Establishing a history of on-time payments may be the single most important component of a good credit score.
- Pay more than the minimum required — Ideally, you want to avoid paying interest completely by paying your credit cards off every month but, if you can’t do that, you can still save on the overall interest you’ll pay by consistently paying more than the minimum amount required.
- Limit your number of open credit accounts —Having too many open credit accounts, or opening several in a short period of time, is a sure way to lower your credit score.
Save. Invest. Repeat.
Saving and investing are essential ways to help you build long-term financial stability and achieve your biggest financial goals. Start by defining clear financial goals. For many people, those goals include:
- Building an emergency fund
Prepare for unexpected expenses or other financial emergencies by setting aside funds in a dedicated account. Set a goal of saving enough money for six months’ worth of expenses.
- Saving for retirement
Take advantage of employer-sponsored 401k, pension and deferred compensation plans. Also, Individual Retirement Accounts (IRAs) can help you build toward the retirement you want. Diversify your investments to include a mix of investment classes, from low-rise options like bonds that can provide slow, steady growth to riskier equities like stocks that offer the potential for higher rewards.
- Making a specific purchase
Some purchases, like a car or a home, or a special vacation, require setting money aside specifically for them. While it’s tempting to put the money in investments such as stocks or mutual funds that can offer a potentially high rate of return, remember that you’ll ultimately need liquidity when it comes time to make the purchase. In this case, a money market savings account or a 30- to 90-day CD account might be a better choice.