April: Financial Literacy Month

If you are one of the three out of four Americans who are in some kind of debt, your government wants to help you learn how to handle your money better this month.

Yes, that’s right; April is officially designated Financial Literacy Month by leaders in business, education and government. They want to spread the benefits of financial literacy to the masses.
As a matter of fact, U.S. lawmakers passed a resolution in 2004 recognizing April as the time to “raise public awareness about the importance of financial education in the United States and the serious consequences that may be associated with a lack of understanding about personal finances.”

What is financial literacy? It simply means that you have the skills necessary to make smarter decisions with your money. But to become literate, the first step is to ask yourself some pretty difficult questions.

Do you have debt, and if so, what are you doing to reduce it? Nearly one third of us pay only the minimum due on our credit cards each month, which means we are paying a lot of interest over a lot of time. Worse, carrying a credit card balance each month can hurt our credit scores.

Do you live within your means or do you spend more than you take in? The best way to find out is to do a budget for your monthly bills and your debt repayment plan. There’s a myriad of inexpensive software programs to perform this task for you, or you can do it the old-fashioned way with a pencil and paper. Or you can open a bank account and deposit every paycheck into this account so you can track your expenses from the itemization on your bank statement.

If you are married or in a relationship, are you and your significant other sharing financial honesty? Among adults with combined finances, almost half confess to not being truthful with each other about their money decisions. There are ways to handle this problem, whether through joining together to achieve a common goal or making everything separate to avoid surprises and financial infidelity.

Do you know how much money you would need in an emergency fund to cover your budgetary expenses if you were out of work for a period of six months? Fewer than half of us have a rainy-day fund for these situations, and those that do have less than $1,000. In the face of stagnant wages, higher taxes, disappearing pensions and outrageous health care costs, this is one of the most important steps to financial literacy you can take.

Are you covered for other catastrophes with various forms of insurance, such as home, rental, car, health or disability insurance?

Finally, do you understand how to make investments with your money? Only you are responsible for your financial freedom, and it is utterly incredible how hard it is to become self-sufficient in retirement these days. According to Forbes, saving $925 per month for 30 years, at a growth rate of 8 percent, will build a $1.26 million nest egg, but that amount saved for 20 years grows to only about $508,000. Saving a few hundred dollars a month isn’t enough anymore.

Experts agree that the amount of money you save is just as important as the amount of money you make. Consider the power of compounding interest known as the Rule of 72. It calculates the approximate time over which an investment will double at a certain rate of interest. Your savings with a 6 percent annual rate of return will double in 12 years, and your savings with an 8 percent annual rate of return will double in nine years! Albert Einstein called this magic of compounding the “eighth wonder of the world or man’s greatest invention.” However, as noted above, it can work against you when it comes to credit card balances.

It’s a good bet to list your options or meet with a financial advisor to plan your future monetary success. Remember to include target dates on all your decisions. Nothing is more powerful than setting and reaching a goal. You can begin by opening a high-interest savings account or setting up a retirement account through your employer with an automatic payroll deduction plan.
There is a difference between setting short-term and long-term financial goals. Remember, your short-term goals are the smaller steps to help you achieve the long-term goals. Having adjusted your habits along the way with the short-term steps ensures you will one day achieve the long-term goals of a successful retirement, when you will be free to use your money to do the things you really want to do. ■

Sources: frominteresttoriches.blogspot.com, moneytips.com, scholastic.com and thestreet.com.