In 2004, the National Endowment for Financial Education (NEFE) recognized April as Financial Literacy Month1, now known as Financial Capability month, and is observed every year to both celebrate financial literacy and encourage financial education. Our finances are a major part of our lives, and not only affect our day-to-day living, but can also affect our long-term plans and the things we want for our future. Therefore, it’s incredibly important to have a good understanding of your finances so you can accomplish your financial and personal goals in life. Cash Central understands that’s easier said than done though as finances can easily get confusing. In honor of Financial Literacy Month, here are some things you can do to help gain a better understanding of your finances.
A good first step to take before evaluating your finances is to set goals. Doing so can help lay the foundation for your finances as it will allow you to focus on what’s most important to you. It’s often a good idea to think of what you’d like to accomplish in the short-term, immediate future, and what you would like in the long-term. Here are some questions to consider when creating your goals:
- Are there any areas in which you feel insecure financially?
- What makes you feel most financially secure?
- Where would you like to see yourself in 5, 10, and 15 years from now?
- What dreams and aspirations do you have and how do your finances relate to those?
We know we’ve said this before, but one of the best things you can do when managing your finances2 is to create a budget – and this holds true for improving your financial literacy, too. A major part of understanding your finances is knowing how much money you have coming in and where that money is being spent. Once you have a good idea of your current situation, you can then decide where you might like to change things up and how you can better target your goals. For example, perhaps your goal is to pay off debt so you feel more financially secure, and while budgeting you find you’re spending more at the grocery store than you thought you were. You could then set a budget for grocery shopping with a maximum amount you’re willing to spend, and then use the money you’re saving to go toward paying your debt. Once you’ve paid off your debt you could then move on and begin working on your next goal. In a nutshell, creating a budget entails calculating your income, tracking where you spend your money, and then deciding how you want to allocate your funds moving forward. This might seem like a big task, but as always, we have your back. The Cash Central Budget Planning Tool will walk you through creating a budget, step-by-step, from beginning to end.
Another major part of understanding your finances is knowing how to build and manage your credit. Certain purchases you may want to make will require you to have more than just the ability to pay for them, specifically things you’ll need financing for such as purchasing a car or obtaining a mortgage for a home. Financing for these types of purchases will require sufficient credit history and a satisfactory credit score. There are five key factors that make up your credit score:3 payment history, age of credit, credit utilization, account mix, and credit inquiries. Each of these factors also affect your score differently and some have a greater effect on your score than others. Credit is a complex topic and can be difficult to understand, which is why Cash Central has an entire section of our blog dedicated to the topic so you can learn more about how credit works and how you can better build your credit.
We’ve gone over some financial basics, but these just scratch the surface when it comes to understanding finances. A great way to continue your financial education is to keep up with financial resources. This can be reading financial books, journals, blogs, and articles, listening to podcasts, or watching financial YouTube videos. Finding such resources may seem like an intimidating task, but if you search for financial resources on the internet, you should find plenty of options to choose from on any topic you can imagine. If you need a place to start, the Cash Central blog is chock full of financial education, tips, tricks, and advice to help you with your financial management.
Pass It On
Financial education and good financial management is incredibly important. Though learning the ins and outs of finances can be difficult, we can make this a little easier for our children by passing on our knowledge. As you gain financial knowledge you can share it with your children to help ensure they are financially literate as well as they grow older. By doing so, once they are adults and ready to begin their lives, they should have a good starting point on managing their own finances. For additional resources to help your children, feel free to check out JumpStart.org4, a coalition dedicated to advancing financial literacy in youth.
1National Endowment for Financial Education. Retrieved from: https://www.nefe.org/
2Bell, Amy. (2022, Apr 7). Retrieved from: https://www.investopedia.com/financial-edge/1109/6-reasons-why-you-need-a-budget.aspx
3Irby, LaToya. (2021, Jun 21). Retrieved from: https://www.thebalancemoney.com/factors-affecting-credit-score-960527
4JumpStart Coalition. Retrieved from: https://www.jumpstart.org/