In 2004, Congress officially designated April as Financial Literacy Month, after several surveys found that young people, in particular, were not learning how to manage their money. In addition to these studies, it was found that millions of Americans had no accounts with an insured bank, many adults were not on track to be prepared for their eventual retirement, and many were not actively saving money.
Therefore, the goal of Financial Literacy Month is not just to help young people prepare for their financial future, but to give everyone a chance to learn more about investments, savings, debt control and money management. Federal agencies, banks, credit unions and schools all participate in promoting financial educational awareness throughout the month.
What is financial literacy?
In the simplest sense, financial literacy is knowing and understanding how to take care of your money responsibly. This covers everything from saving up enough money for an emergency fund to making investments to make your money grow.
Financial literacy does not mean that you need to know economics on a macro or micro level, but instead, understand your own decisions and routines, and how they affect your personal financial picture.
Try taking these simple steps every day for one month, and you may notice your money starting to do more for you now that your financial literacy has increased.
Your path to financial literacy
You have 30 days in April to increase your knowledge about finances and find ways to improve your money management habits. Take just one step a day, and by the end of the month, you should be in a good position to sustain your finances year-round.
Days 1-5: Setting Goals, Past Activity, Spring Cleaning and Credit
Take a deep breath, and commit to moving forward on your path to financial literacy. Think about how you’ve been handling your money, and what your goals are for the future. Try and identify just one goal—from reducing your debt to improving your credit score.
Then, reflect on where you are financially and your attitude towards finances:
- Do you pay your bills on time?
- Do you maintain a budget?
- Do you save money every month?
- Do you have an emergency fund?
- Do you save in advance of significant purchases?
- Do you check your credit report?
- Do you regularly check your bank and credit card statements?
If you answered no to most of these, then you know there are some areas you’ll need to improve over the next month. If you answered yes to most of these, then you’ll be in even better shape come May.
Make your finances a priority by setting up a specific area in your home where you can do everything from paying bills, to surveying accounts and managing budgets without being interrupted. If you share financial responsibilities with someone else, make sure you have a process in place to help come to an agreement for your decisions or decide early on who can make the call for split decisions.
A good place to start when looking to understand your financial picture is your credit. This is your pathway to any loans and can help you get much better rates, ultimately saving you money in the long run. You can get a report from each of the three major credit bureaus once a year for free, so consider spreading your requests out over the course of the year for a more comprehensive look at your credit. Once you have your credit report, you’ll want to check for any errors or suspicious activity. If you find a problem, contact the bureau directly to initiate a formal dispute.
Days 6-10: Income, Net Worth, Debts
Do you think of the money you make each year as gross income, or do you factor in all other costs to calculate your net income? Your paycheck is likely subject to tax deductions, medical plan contributions or even required dues that can make your gross income number smaller. Calculate the net amount you make each month and each year so that you can better estimate your cost-to-income balance.
Next, figure out what you are worth by calculating your assets and liabilities. Assets include your checking and saving accounts, your home, your car, your retirement accounts and any investments. Liabilities are everything you owe—such as your mortgage, student or car loans, credit card balances, taxes, and other contractual requirements. Your net worth will be your assets minus your liabilities.
Days 11-15: Clarifying Goals, Paying Off Debt, Savings for Emergencies and Retirement
Break your goals into short, mid, and long-term targets. For the short-term, you may want to aim to pay off $10,000 worth of a loan within one year; for the mid-term, your goal may be to free of that specific debt within five years. Your long-term goal may be to reduce your overall debt or to use those savings for a particular purpose.
Start taking steps to pay off your debt, but while you do, keep making payments on everything you owe. You may want to focus on your smallest balance and aim to pay that off first, working your way to the larger balances. Seeing the progress you’re making with the smaller bills can really motivate you to keep on this path towards financial freedom. The reverse would be to pay off your larger balances first, which may feel like more of a challenge but could also save you on overall interest payments.
Now, look at your general savings, including how much you have and how you are saving it. Try setting up automatic transfers or enroll in direct deposit at work. Look for easy ways to add to your savings by picking up a side gig or holding a yard sale to get rid of unwanted extras.
If you have a rainy day fund, make sure to have enough money to cover your expenses for three to six months. If you don’t have an emergency fund, start right now by putting any extra money you have into a separate account and keeping that money reserved for emergency purposes only.
The U.S. Government Accountability Office (GAO) found that 29% of households age 55 and above have no dedicated savings or plans for retirement. Start preparing now to avoid this situation when you retire, whether you have to set aside some extra funds to invest independently or are offered an employer-sponsored plan.
Days 16-20: Expense Tracking
Figure out how to prioritize your money by identifying your needs vs. your wants. Needs are things required for survival, from your groceries to your debt payments. Wants, on the other hand, are things you could live without, like spending on entertainment or the latest fashion accessories.
Start tracking your daily expenses, including every cent you spend, where it went and what it was for. Do this for a few days as it will help you better understand the average cost of your day-to-day expenses.
Next, calculate your fixed monthly costs, which include things like mortgages, rent and any loan payments. Because these amounts generally stay the same every month, you can plan ahead and be prepared to pay them in full and on time. You also have expenses that may not quite qualify as daily or monthly expenses, but do reoccur. These could be family birthdays, holidays, registration fees, self-employment tax or other amounts that you can also plan for.
Add up your daily expenses, fixed monthly costs, and your other reoccurring costs to determine your total cash outflow. Take these total expenses, subtract them from your net income, and see if you end up with money left over or if your expenses dwarfed your earnings.
Days 21-25: Saving Money, Cutting Costs
Start implementing easy ways to cut costs on a daily basis, no matter what your finances look like currently. Clip coupons, start bringing lunch and coffee from home, get rid of cable and take other steps to start saving small bits that will quickly add up.
An easy way to cut down on necessary costs like groceries is to start shopping smarter. Make a shopping list that aligns with the meals you’re planning to make each week, and make a real effort to stick to this when you go to the store. Start paying in cash or load your cash to a Green Dot Cash Back Visa® Debit Card (check out their simple fees here) so you have a set amount to spend.
Now that you understand your income and expenses in better detail, see if there are areas where you can cut down your spending even further. If you want to reduce cable costs each month, consider cutting any premium channels you may have. Use this as an opportunity to reassess how much money you’re currently spending, and how much more you could be saving.
Days 26-30: Getting Help, Staying Motivated
Get ready to keep your momentum going by finding the right tools to help you manage your money over the long run. By opting to use a reloadable debit card like the Green Dot Cash Back Visa® Debit Card, you will help put your financial literacy to use. A reloadable debit card like Green Dot’s will not only help you track your spending, but also allow you to earn 5% cash back on purchases made with the card, up to $100 annually. You’ll also be able to use online banking and text messaging to check your balance from almost anywhere and you can even set up automatic bill pay so you never miss a payment (message and data rates apply). Learn more and view Green Dot’s simple fees here.
It’s now time to take this knowledge and come up with a plan moving forward. How will you continue to increase your savings and reduce your spending? Think of your initial goals one last time; do they feel more achievable now? Let us know in the comments!
Ready to apply your financial literacy knowledge? Get your very own Green Dot Cash Back Visa® Debit Card today!