When 44 percent of Americans don’t have $400 saved up for an emergency and 33 percent of Americans have $0 saved for retirement (according to statistics from a Forbes published by Dani Pascarella), it’s a strong sign the financial well-being of Americans is flirting dangerously close to bankruptcy. These rates of financial literacy are concerning to say the least, so here are some steps to increase your financial literacy and put your money where you need it.
- “Budget today for the lifestyle you want tomorrow”
First and foremost, have a plan. The first step in making your dreams a reality is knowing your dream. When you know what you’re saving for, it gives you the motivation and the end goal. When you’re tempted to buy that second cup of coffee or that blazer from the new arrivals rack, you can then ask yourself, “Would I prefer to have this blazer or have more to spend on my vacation New York this summer?” These mantras can put your goal in perspective and keep you on track.
The second step is to actively plan. Create a savings plan. Chance, good fortune and lottery tickets will not be the solution to all of your problems, but your actions can be. Maybe spend less on your electronics now so you can retire early and travel. Eat out less so you can buy your dream house. Look 5, 10, 20 years into the future and respect the demands of the future, advice courtesy of a crowd-sourced tips page on Business Insider.
- Anticipate major costs
No one wants to think about having to face a medical emergency, but as they say, life happens. Sometimes, when life happens, it also hands you a hefty bill. As stated earlier, 44 percent of Americans don’t have $400 saved up for an emergency and that’s alarming when the results of a 2013 study by the National Institute of Health put the median cost of an emergency room at $1,233, according to Debt.org. Even putting aside $10 every paycheck can help build up your emergency fund so when life hands you that hospital bill or car repair bill, you don’t have yet another thing to stress about.
- Have your savings and checking accounts at separate banks
When you know how much you have in savings, it makes it that much more tempting to dip into those savings for that new laptop or a little extra cash for your vacation, as explained by Business Insider’s Emmie Martin. By keeping both your savings and checkings account at separate banks, you not only prevent the problem of seeing both figures at once, it also makes it harder to funnel the money from your savings to your checking account.
While we’re on the subject of savings account, it might also be a good idea to open two separate savings accounts, one for emergencies and one for your saving priorities, be it travel or another large purchase.
- Give your credit score and report the attention it deserves
First, the difference between your credit score and report is the depth of information they provide. In the case of the FICO credit score, this score includes your payment history, amounts owed, length of credit history, credit mix, and new credit, according to an article from LearnVest by Daniel Bortz. Your report is more about the behaviors that lead to the number of your credit score.
You can also get your credit report for free — “Every 12 months, you’re entitled to one free copy of your report from each of the three major credit bureaus — Equifax, Experian and TransUnion,” Daniel Bortz, LearnVest. This means you can get up to three free credit reports a year. Take advantage of knowing your score so you can either maintain it or improve it.
- The $3 rule
The core of the $3 rule lies in buying only what you really need. As Jacqueline DeMarco explains in her LearnVest article, $3 is a small enough amount that you don’t feel like you need to think twice about it, which is why it’s dangerous. One $3 item isn’t going to disrupt your entire savings plan, but just as how saving $10 every paycheck for retirement helps you amass your wealth, spending $3 can lead to a habit that drives you to drop staggering amounts of cash throughout the month without even realizing it.
Money management is all about planning and being mindful where you’re putting your dollars. Be willing to forego that shopping spree so you can have more for retirement. You may not feel the thrill of the purchase today, but you will appreciate the extra savings months, years, decades down the line.