Financial Literacy

Ever feel money problems are taking over your life, like a weed you can’t get rid of? Or that you want to gain control of your finances, but don’t know where to start? Money can be hard, but there’s a tool that makes it easy: Your budget. If you’ve never created a budget before, now is the time. And here’s why.

What is a budget?

A budget is a plan for your money. It details the income you bring in and how you spend that money. When you create a budget, you are essentially deciding where you want your money to go. It’s you taking charge of your money rather than your money taking charge of you.

How to make a budget?

Step 1: Write out your fixed expenses and their amounts. These are things you pay every month like rent, utilities, insurance, phone plan, loan payments, etc. Now track your variable expenses in a month. These are things you spend your remaining money on, like food, gas, clothes, and entertainment.

Step 2: Track your income. This includes your total monthly income after taxes. Include all reliable sources like salary, side hustle earnings, child support, etc.) If you don’t get paid everything month, estimate the amount based on your yearly income from last year divided by 12.

Step 3: Subtract your monthly bills and expenses from how much money you make in a month. This number should be more than zero. If the number is less than zero, you’re spending more money than you make. Look for things in your budget you can change.

For a visual demonstration on how to make a budget, watch this video from The Federal Trade Commission:

https://consumer.gov/your-money/making-budget#:~:text=What%20is%20a%20budget?,how%20you%20spend%20your%20money

Choose A Budget Rule

There are different ways people set up their budget to ensure they don’t overspend and that they are saving enough. A popular method is the 50/30/20 Rule. With this method, you designate:

• 50% of your income to needs (housing, utilities, groceries)
• 30% for wants (dining, entertainment, subscriptions)
• 20% for savings/debt (emergency fund, retirement, paying off credit cards)

Choose a Budget Tool

Use a spreadsheet, a budgeting app, template, or simple paper and pen to track your expenses throughout the month, as well as your income, ensuring you stay within the budget parameters you choose.

Review monthly

At the end of the month, see what worked and what didn’t. Regularly tweak your budget so that it fits your needs, goals and spending habits.

Tips for Success

• Set up alerts for overspending.
• Set up auto payments for fixed expenses.
• Use bank apps to see spending patterns.
• Avoid juggling multiple budget tools. Pick one, like a spreadsheet and update it regularly.
• Don’t stress about past months. Budget based on this month’s income and bills.
• Adjust your budget to accommodate changes to expenses or income.
• Look for ways to cut expenses (like gym memberships you don’t use)
• Shift your mindset from the scarcity mentality of “I can’t afford this” to the abundance mentality of “How can I make this work?”

If used correctly, credit cards can be a valuable tool, helping you improve your credit, earn rewards on purchases, and provide some financial flexibility. There are many different types of credit cards, all with different benefits. It’s important to figure out what you want to achieve with your credit card and then find a card that helps make it happen.

Here’s a breakdown of some of the biggest benefits credit cards provide:

Credit Building

Credit builder cards help you improve or re-establish your credit history. If you’re just starting out on your credit journey or if you’ve had credit issue in the past and are trying to rebuild your credit, this is a great option. Be sure to make small charges and pay them of weekly to show consistent use without high balances. Since payment history is 35% of your credit score, don’t be late with your payment.

Travel Points

If you travel, you may want a card that rewards you with points or miles for every dollar you spend, which you can redeem for travel-related expense like flights, hotels, or car rentals. Many of these cards provide sign-up bonuses, so if you spend say $4,000 in three months, you can earn a large intro bonus such as 60,000 points.

Some perks that may be included: free checked bags, no foreign transaction fee if you make purchases when traveling abroad, travel protections like trip cancellation insurance or lost luggage coverage.

Be careful of cards that charge high annual fees for perks that you might not use, such as lounge access. Be sure the benefits exceed the cost when the annual fee is taken into account. Also, rewards cards may have high APRs so take that into consideration as well if you don’t intend to pay the card off every month.

Cashback

These cards give you cashback or statement credits (up to a certain purchase amount) each month. It could be a flat rate of 1.5% back on all purchases or category-based, such as 5% back at gas stations.

Similar to travel rewards cards, cashback cards may carry a high APR, which can negate the rewards if you carry a balance. Always aim to pay the card off in full each month. Also remember, cashback may cap at a certain purchase amount.

Promotional Low Interest or No Interest

These can provide some financial relief if you want to spread out the payments of a big expense during the 0% APR period. Another benefit is to transfer other high interest debt to the promotional card, allowing you to pay down the principal faster.

Be careful with these cards as some might charge a balance transfer fee. Also some of these card promotions have deferred interest meaning if you don’t pay off the full balance by the end of the promo period, you’re charged interest retroactively on the entire original amount.

Comparison sites

To find the best card promotions, you can research online. Some sites that offer comparisons or promote current specials include bankrate.com, nerdwallet.com, and thepointsguy.com.

No matter which card you choose, most credit cards have benefits such as:

• You can make instant purchases without carrying cash, online or in the store.
• Responsible use builds your credit.
• You can dispute charges for faulty goods, services not rendered, or billing errors.
• Most cards offer a 21- to 30-day grace period after the billing cycle, letting you use credit interest free if you pay the full balance by the due date.
• Card apps often let you track spending, set alerts, pay bills, even turn the card on or off if it’s lost or stolen.

While there’s more to life than money, you can enrich your life and the lives of your loved ones when you earn better returns on the income you make. After all, the idea behind investing is to make your money work so hard for you, that eventually you don’t have to work anymore. (Your money does all the work!)

When you invest wisely, you typically can build wealth faster than with traditional savings accounts especially if you reinvest your earnings (such as interest and dividends) and if you start early (as in today!). In addition, invested funds will likely outpace inflation, especially if you diversify your portfolio.

If you’re wondering where to start—or how to start—let these smart investing strategies lead the way

Start now.

The sooner you start investing, the more exponentially your investments will grow. That’s due to the power of compounding (aka the snowball effect), which is essentially your earnings generating earnings, leading to accelerating growth over time.

Here’s an example:

Let’s say you invest $1,000 at a 5% annual compound interest rate.

Year 1: You earn $50 in interest, bringing your total to $1,050.

Year 2: You earn interest on the new total of $1,050, resulting in $52.50 in interest for that year, making your new total $1,102.50.

This cycle continues, with each year's interest being added to the principal and generating further interest.

Open an individual retirement account (IRA) or enroll in your company’s retirement plan—or do both—and watch the magic happen. Don’t delay!

Be consistent.

Rather than invest a lump sum of money into the market at one time, spread out when you buy. This is a popular investing strategy called dollar-cost averaging, where you put smaller, fixed amounts in regularly, such as monthly or bi-weekly.

If you have a 401(k), you’re already dollar-cost averaging with every paycheck. But you can also use the practice in a typical brokerage account, individual retirement account (IRA) or any other type of investing account. Over time, you’ll be buying at both market lows and highs, averaging your purchase prices.

Diversify.

Think variety here. Rather than having all your eggs in one basket, aim to spread your money across a variety of investments and asset classes. A diversified portfolio may contain 20 to 30 (or more) different stocks across many industries. It may also contain other assets, too, including bonds, funds, real estate, CDs and savings accounts.

Here’s a breakdown of each type of asset, from Bankrate. It’s important to choose your investments based on your goals, investment horizon, and your tolerance for risk.

• Stocks offer the potential for the highest return over time, but can fluctuate wildly over shorter periods.
• Bonds can offer steadier returns with a fixed payout, but can vary as interest rates rise and fall.
• Mutual funds and exchange-traded funds tend to be diversified because they usually hold many investments, but a specific fund may hold only one kind, for example, consumer goods companies. So, a fund could be broadly diversified or narrowly, depending on how it’s managed.
• Real estate can appreciate slowly over time and offer the potential for income, too. But physical real estate can be expensive to maintain, and commissions are high.
• CDs and savings accounts will not fluctuate in value but will grow steadily based on the interest rate or other contractual terms.

Define your goals/track your progress.

Define what you are saving for, how much you want to save, and your time horizon. For example:

• I want to have $5,000 saved for a down payment on a home in 3 years.
• I want to have $50,000 saved toward a child’s college education in 18 years.
• I want to have $1 million set aside for retirement in 20 years.

Whatever your goals, be sure you set specific and measurable targets. Track your progress the same way—with clear metrics. For instance, a progress metric may be to grow your investment portfolio by 10% annually, which is easily measurable. Regularly revisit your savings goals and make adjustments as your needs, goals, and financial circumstances change.

We all know that investing for the future is important, but many of us avoid it because we don’t know the best way to go about doing it. You may find that once you get started and follow these tips for smart investing, everything will fall into place.

When you buy a home, you let your dreams unfold. It’s an exciting time, as well as an emotional—and financial—milestone. To do it right, follow these smart moves for buying your first home.

Get pre-approved for a mortgage early.

Go to your lender and get a pre-approval letter. This shows sellers you’re a serious buyer, making your offer stand out in a competitive market. It also lets you know realistically what you can afford so you aren’t wasting time exploring homes you can’t afford. 

Check out first-time homebuyer programs or assistance-based programs.

There are plenty of mortgage programs out there to assist first-time homebuyers with down payment and closing costs that offer tax credits, or that accept a lower credit score or low-income thresholds. Some are geared toward rural housing or military/veterans. Your lender can guide you through all your options.

Focus on financial strategy over emotion.

Your starter home is a first step to building wealth, allowing you to build equity over time. Be sure you can easily manage the payments. Keep expectations in check. Consider a fixer-upper with a solid structure—or a home slightly farther out—with good resale potential.

Stay within budget.

Financial overwhelm can quickly turn a dream home into a nightmare. Set a max budget and stick to it. Many experts suggest using the 28/36 rule as a guide to what you can afford. Keep housing costs under 28% of gross monthly income, and total debt under 36%. It may mean you buy a lesser home, but you will fall in love with it more when you have manageable payments. Budget for ongoing expenses such as taxes, insurance, utilities, HOA fees, and maintenance.

Get a home inspection.

Always get a professional home inspection. It’s one of the smartest moves you can make, as an inspection often uncovers hidden problems you can’t see. Common problems inspectors find are related to the roof, foundation/structure, moisture, electrical, plumbing, and HVAC. With an inspection report in hand, you can negotiate with the seller to either fix the problems or negotiate a lower price. Be sure to have an inspection contingency in your contract. That way if the report reveals major problems, you can walk away from the house and get your earnest money back.

Ask for seller concessions.

Ask the seller to help with closing costs, repairs, or rate buydowns. In fact, some real estate agents specialize in first-time homebuyers, and their fees may be paid by the seller as well.

Get your credit in check.

When you have strong credit, you’re more likely to be approved for a mortgage that has favorable terms and a lower interest rate, which leads to significant savings. Now is the time to check your credit report, which lists all your debts and whether you paid them back on time. Make sure you don’t have any outstanding issues showing up on your report, which will affect your credit score. It’s best to get your credit score as high as possible prior to getting financing.

Congratulations on taking this major step toward buying a first home—getting educated. Next step is to gather your team of experts (from lender to real estate agent to home inspector) who believe in you, who will walk that path with you, and who want to see your dreams unfold, too.  

When you instill values in your children at an early age, those values have the power to take root and guide them throughout life. One such value is being financially responsible. It’s a value that consistently ranks among people’s top priorities. After all, people with healthy money habits are more likely to have control over their finances, experience less stress and more peace of mind, make purposeful choices, and become financially stable and successful.

The more positive and mindful we are in our own relationship with money, the more that will transfer over to our children. Limit arguments about money or conversations about not being able to afford something. Rather, make the conversation about the choices you’re making with money. Feel free to narrate your decisions out loud: “We’re not buying this because we are saving for something else.” Or: “I’m choosing the generic brand because it’s just as good and it costs less.” Or: “We could buy this now, but we’re saving for a vacation.” Or: When they beg for an item at the store, respond: “Sure, did you bring your money?” or “Sure, how long will it take to save your money?”

Your children are watching every move you make; show them what you want them to emulate. Children as young as 3 can understand the value of money, with the key period for forming habits around ages 5 to 7.

To help foster healthy money habits in your children, start early, have conversations (not lectures), focus on real-life experiences, and make it fun. Here are some age-by-age tips.

Early Childhood

• Use play money and a play store to show them how you give money to get things.
• Give them a clear jar to use for their own savings and make a big deal about seeing it fill up.
• Talk about money as you’re using your money. Make it part of the conversation and not a lecture. Talk about how when you save money, it grows.
• Let them experience how money works. Going to the store? Have them take some coins or dollars from their jar to spend. Let them hand the money over.
• Teach them how money comes from working.

Elementary School

• Remind your children that money is earned; pay them for chores they do for you.
• Introduce three jars: one to store savings; one to store spending money, and one to store money to give.
• Guide them in giving. Allow them to donate to a charity or cause or buy something for someone else.
• To teach delayed gratification, encourage them to save up for a particular item. Or if they decide they want something, make them wait a day before buying. See if they still want it.
• Teach wants vs. needs; take them grocery shopping and show how you compare prices or are selective in buying only what you need.

Middle School

• Discuss the household budget and involve them in decisions.
• Make saving a family game or goal. Try a “no-spend challenge” for a weekend where you only spend on necessities. Make meals using ingredients from the pantry and freezer. Rather than go to the movies or spend money on entertainment, come up with creative ways to have fun without spending such as a picnic at a park, or game night at home.
• Make crafts for holiday gifts.
• Let them spend their money how they want and experience the effects of their decisions.
• Support them in making money through a side business, like raking leaves or dog walking or selling their old toys.
• Volunteer as a family and let them experience helping someone else in need.
• Take them to open a savings account and explain how interest works.

High School

• Have the conversation about getting a part-time job.
• Go with them to open a checking account. Discuss direct deposit, automatic savings, credit cards, debit cards, and the importance of protecting their financial information. Have them practice depositing and withdrawing money with a debit card—and experience the ups and downs of having immediate access to their funds.
• Teach basic investment concepts like compound interest.
• Discuss long-term goals like saving for a car or college and what that entails.
• Have them take over some of their bills like cell phone or clothes.
• Discuss long-term goals: Talk about saving for bigger things, like a bike, vacation, or college.
• Show them how you’re making smart financial choices. Also, share stories of mistakes you’ve made.
• Discuss the importance of good credit and how it leads to opportunity such as lower interest rates on loans. 
• Introduce them to tools such as their bank’s online and mobile banking, as well as other financial apps.

One of the biggest ways children learn is by observing—and doing. Include them when paying bills, spending money, or discussing large purchases. Host family financial meetings and discuss the financial choices you make and why.

Finally, let them know you believe in them, and they will learn to believe in themselves.