Financial Literacy Month – Financial Freedom
What is financial literacy?
Financial literacy describes the skills, knowledge and tools that help equip people to make the best individual financial decisions and actions to attain money goals. That’s why education is key to uncovering the foundations of economic opportunity that lead to financial freedom.
Why it matters
A lack of knowledge on managing your personal finances can carry a high cost. In a 2021 survey, the average amount lost during the year because of a lack of financial knowledge was estimated at $1,389 per adult.
When setting financial goals, you should first think about what you want to accomplish and why. Your goals also should be SMART, an acronym that stands for specific, measurable, achievable, realistic and time bound. Using this strategy helps ensure you can better meet your financial goals in a timely manner.
Example: Create an Emergency Fund.
- Specific: Open a savings account for an emergency fund.
- Measurable: Save six months worth of income within two years.
- Achievable: Creating a monthly budget will assist in saving monthly.
- Realistic: Keeping on budget will allow to save $800 a month.
- Time-bound: Deadline is two years.
Here are steps you can take to get on the road to financial freedom.
Saving will help you on the road to financial freedom. If you’re not yet saving, get started now. The sooner you start saving, the more time your money has to grow.
- 51% of Americans have less than three months of emergency savings.
- 25% of respondents said they had no emergency savings at all,
- 26% say they have some emergency savings, but not enough to cover expenses for three months.
Living within a budget, also known as a spending plan, is a major step forward. A budget can help you determine where you may be overspending and help you identify and adjust unhealthy spending habits. By making even small adjustments to your budget, you may be able to save more or make larger payments to dig out of debt.
A 2021 survey shows the pandemic seems to have led more Americans to rein in spending. The survey found that 80% of people said they have a budget. In the same poll two years ago, the number was 68%.
Building and maintaining your credit score
Credit scores range from 300 to 850. The best credit score is 850. In the United States, the average FICO Score is 711 and the average VantageScore is 688.
To build and keep a strong credit score, do the following:
- Pay your loans on time, every time.
- Keep your balances low compared to your total credit limit.
- Pay off your balance each month if possible.
- Only apply for credit that you need.
- Check your credit report regularly. If you spot errors, dispute them. You can use CreditSense to review your score and report.
- Don’t cancel long-standing accounts if possible. A long credit history will help your score.