August 14 is National Financial Awareness Day—a good reminder to take personal stock of your financial awareness. What does it mean to be financially aware? Financial awareness is akin to financial literacy and both refer to the knowledge and skill sets that support solid financial decisions and overall financial health.
If you are financially aware, you are probably
If the above-mentioned bullets don’t describe you, you aren’t alone, and the good news is that you can begin improving your awareness today. To get started, read this article and follow the links to additional articles that will help you improve your financial literacy and get on the track toward greater financial wellbeing.
Stop living paycheck to paycheck
If you’re living from paycheck to paycheck, you can become more financially stable by either making more money or doing a better job managing the money you have. If you are not making enough money to pay your monthly bills and cover other needs, your best option may be to get a second job or a better paying job. To determine if this is the case, you can do some simple math on paper. Write down the amount of money you have coming in from your job and any other sources in one column. In the other column, write down the amount of money you spend each month on bills, debt payments, and other essentials. If the columns are equal or if the total of your bills/essentials is greater than the total on the income side, it’s time to find more or better-paying work.
If you’re making enough money but your paycheck is stretching far enough, you may have to exert some self-control, but more likely, you simply need to gain an understanding of where you are overspending. Most often, people overspend when they aren’t paying attention to where their money is going. It may sound ridiculous—you spend the money; of course you know where it’s going. But take the time to examine how you spend your money and you will probably be surprised to discover how much money you are spending on unnecessary purchases. Creative Ways to Save Money on a Tight Budget offers a detailed plan and tips to help you identify waste, start saving, and (eventually) begin investing.
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Create a budget
Budgeting your money is easier than it sounds. It requires creating a list, much like the one you created above. You can download a budgeting app, or you can do it old school on paper. If you want to go old school, How to Make a Budget provides step-by-step instructions.
Don’t forget to pay your future self
If you pay into the Social Security system, you will receive Social Security when you retire. That is the good news. The bad news is that your Social Security check probably won’t be enough to live at your current comfort level. You will need additional savings to draw from and the only time to save that money is BEFORE retirement when you are earning money.
Ideally, your employer offers a 401(k) plan, where you can automatically save a portion of your earnings and receive matching funds from your employer. But if that is not the case, you can take retirement matters into your own hands by opening an individual retirement account (IRA). Investing 101: How Does an IRA Work? will help you understand the basics of IRAs.
Save ahead and avoid debt
Credit cards can be a convenient payment method, with some nice benefits. However, if you don’t pay them off immediately, they are THE most expensive way to borrow money. Because they offer unsecured, revolving debt, they charge a high interest rate on the money you borrow. Don’t get stuck in the credit card trap. If you own one, pay it off as quickly as you can, and from this day on, only charge amounts that you can easily pay off before the end of the billing cycle.
To avoid using credit, you’ll need to save. But don’t just save. Save wisely. As you build your savings, use different types of savings accounts to get a better rate of return on money you won’t need as much access to. In other words, you will want to keep money you need regular access to in a savings account, but savings above your daily needs may be better suited to a higher-return money market account. Funds you won’t need for six months or longer could return even more if you save it in a CD. This concept is more fully fleshed out in How to Make More on Your Savings Accounts.
Keep up a good credit score
If your credit score is high, it’s probably because you use it wisely and you don’t miss debt payments. If you don’t have a good/high credit score, you may need to make changes in how you handle your credit. Some factors that will affect your credit score include the amount of debt you have, how many and what type of credit accounts you have, the length of your credit history, and your payment record. If you need to build your credit, dig deeper into the factors behind your credit score by reading Credit Score Breakdown: 5 Factors of a Healthy Score. To avoid common credit mistakes, read Five Common Credit Score Myths.
Continue the good work
If you’ve read this article and followed the links to review the associated articles, you are already more financially aware than you were yesterday. Keep up the good work by following through on the advice and knowledge you’ve received from these articles and you can improve your financial wellness for the long term.
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