Is Your Finances Education Lacking?
National Bureau of Economic Research
There is more bad news according to a recent survey done by the National Bureau of Economic Research. The survey, titled “Financial Literacy among the Young” showed that fewer than 33% of young adults from 20 to 30 years of age have a basic knowledge of interest rates, inflation and how to control investment risk. The survey showed that though people are willing to learn, they are not educated on basic financial issues.
If you count yourself as one of the millions of Americans who has a lot to learn in terms of finances, then do your own research. We got some tips for financial management for you. A basic understanding of each could make a huge difference in your future economic health.
Your budget is key
You may be tired of hearing about the budget, but the budget is Number One when it comes to finances. You have to know how much money you bring in, how much you put out, and the surplus or deficiency that generates every month. It’s easiest to write everything down in a notebook or find software that can help. Mint.com is a website where you can keep track of your own budget. Once you figure out whether or not you have a surplus or deficit at the end of your accounting period, you can start cutting back on unnecessary expenditures.
Build up savings
Your parents were right: Cash is king. Parents in generations past knew you had to put money aside. Along the way, we forgot the value of saving, and though debt was the best idea. We started spending more than we really had. How do you fix that? Start saving again, just like your parents did. The best thing is to take a percentage from each paycheck and put it away before anything else.
It’s not always wise to use credit
Credit-card debt is a huge expense for a lot of families, and it can cause enormous problems. The best things to do with credit cards, is to use the buggers for occasional small purchases. Then pay them off right away. The cost of credit is just too great to hold a balance for any length of time. You might have a low interest rate, but you’re paying more than you would if you’d have used cash.
Plan for retirement
The Roth IRA is a great retirement-planning tool. It’s flexible, and best of all, tax free. Normally every workplace has some type of IRA available and you should always take advantage of company matching. If your company doesn’t match your IRA, then stay with your own Roth IRA.
Insure yourself
For anyone with young children or other dependents, life insurance is a necessity. A general rule of thumb is to have enough life insurance to cover eight to ten times your current annual income. It might sound like a lot, but it isn’t. Once you die, your loved ones, especially young children, will need money to sustain themselves. If your income is $ 80,000, for sake of argument, you should get $ 800,000 in coverage. If your family has to live on that money for 15 years before they are old enough to manage by themselves, that’s only $ 53,333 a year.
Managing finances wisely
If we’ve learned just one thing from this recession, it is that wise decisions are key to surviving a tumultuous economic market. Though it looks like the economy is on an upswing, it doesn’t mean by any stretch it’s back to normal. People who were mired in debt before the recession hit don’t have the luxury of waiting to sort out their finances. It’s better to get to hard task of analyzing your spending, and changing them right away. Your financial future depends on it.
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Filed under Debt Management, Personal Finance by JayJohn
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