April is National Financial Literacy Month, and it's an excellent time to take inventory of your financial outlook and set some goals for the future.
Everyone wants to get better with money, whether that means earning more, spending less or building generational wealth.
‘Financial literacy’ refers to the knowledge and skills needed to manage personal finances effectively. It includes budgeting, saving, investing, managing debt, and understanding financial products and services. The good news is that you don't need to be a financial expert to improve your financial literacy.
Here are some helpful tips to enhance your financial knowledge and take control of your finances this April and beyond.
Why is Financial Literacy Important?
Financial literacy involves having a practical understanding of money management. It's an essential skill for all retirees and pre retirees as it forms the foundation for a secure financial future. Without knowledge of critical financial skills, such as budgeting, investing, and retirement planning, managing finances can become much more challenging.
At NJM Wealth Preservation Strategies, we understand that finances can be challenging to handle, especially during these uncertain times. According to a survey by Pew Research Center, one in ten people who experienced a decline in their financial situation during the pandemic believed that their finances would never recover.
However, observing Financial Literacy Month can put you on the path towards financial stability. The focus on money management enables you to take advantage of resources available to you, enhancing your financial knowledge and improving your current and future financial situation.
Assess Your Current Financial Situation
To get a better idea of where you are currently, you need to figure out your debt to income ratio. This ratio is calculated by dividing your monthly financial obligations by your total take-home pay. In other words, it determines whether you're living within your means. Although it may not be the most fun task, it is essential to assess your debt to income ratio, or DTI.
Start by taking inventory of your income, expenses, debts, and savings. Next, create a budget that outlines your monthly spending. To ensure accuracy, review your statements from the last few months, including debit and credit card statements. This will help you identify your spending patterns and pinpoint areas where you may need to cut back.
Set Financial Goals
After assessing your current financial situation, establish goals for your future. Where do you want to retire? At what age do you want to retire? How do you want to spend your retirement years?
Ensure your goals are specific, measurable, achievable, relevant, and time-bound. For instance, you may aim to contribute more to your retirement fund, or you may switch your focus from a savings to a growth model.
Writing down your goals is a proven way to make them more tangible and achievable.
Educate Yourself
Financial literacy is an ongoing process, and there's always something new to learn. There are many resources available online, such as blogs and podcasts.
You can also consider enrolling in a financial literacy course or attending in-person or online webinars offered by financial experts in your community. These educational tools can help you learn about topics such as budgeting, debt management, retirement planning, and investing.
Remember, financial literacy is a journey that requires continuous effort. By utilizing the resources available and continuing to educate yourself, you can develop the skills and knowledge to make informed financial decisions that will benefit you in the long run.
Start Saving
Saving money is an important part of financial literacy. It's a habit that can help you achieve your financial goals and build wealth over time. Start by setting aside a small amount each month and gradually increase your savings as you become more comfortable.
To make the process easier to manage, consider putting your savings on autopilot. One of the advantages of automating your savings is that you'll have fewer decisions to make about your money, and you'll be less likely to spend it if you can't see it. Auto-saving is an excellent way to achieve this, and there are various options available to you.
For example, you could consider putting your savings in a post-tax Roth or pre-tax traditional IRA. If you're self-employed, you could also consider a SEP IRA. By setting up an auto-transfer for a fixed amount each month, you'll ensure that you're consistently saving towards your retirement goals.
If you are still in the workforce, and your employer offers an employer-sponsored retirement option, such as a 401(k) plan, take advantage of it by saving as much as possible. Since the money comes directly out of your paycheck, you're unlikely to notice its absence. If your employer provides a matching contribution, aim to contribute enough to receive the full match.
Whether it's through an IRA, 401(k), or other retirement plan, taking advantage of these options can set you on the path towards financial security.
Making Your Money Grow
If you aren’t already investing in the stock market, whether through an employer-sponsored retirement account or taxable brokerage account, there’s no time like the present to start.
At the end of the day, there are numerous ways to build a solid investment portfolio using stocks, bonds, mutual funds, real estate and more. However, the right strategy for you really depends on how much extra cash you have, your acceptance of risk and when you may need to access your money in the future.
Building wealth requires diversification, an appropriate asset allocation and plenty of time. If you are looking to switch from a savings model to a growth model, dip your toes into the investing world with the help of a trusted Fiduciary advisor.
Choosing a good financial advisor can help you avoid unnecessary costs and focus on goals. Services offered by financial advisors vary from advisor to advisor, but advisors may provide any of the following:
If your chosen advisor is a Fiduciary, even better. Financial advisors owe a Fiduciary duty to their clients and are required to put their clients’ interests first at all times.
Final Thoughts
Financial Literacy Month presents an excellent opportunity to improve your financial knowledge and take control of your financial future. However, it's essential to remember that financial literacy is an ongoing journey that requires ongoing commitment that is made exponentially easier by having a trusted Financial Professional in your corner.
Keep your financial education going beyond April with a book on investing, building wealth or meeting with your Fiduciary advisor.
Let’s Start the Conversation
Retirement is a time for celebration. It's the end of your working life, and you've earned this time of rest and relaxation. In order to get there and reach your goals, education and financial literacy are key.
As our name suggests, we want to preserve your hard work in the form of a strong and actively managed financial portfolio that you and your loved ones can rely on in your later years. By working with Nic and his team at NJM Wealth Preservation Strategies, you can have confidence, security and peace of mind knowing that your financial future is being monitored and managed actively & effectively.
Contact us here today to set up your complimentary consultation.