Sponsored post by Principal Preservation Services and Principal Wealth Services
April is Financial Literacy Month.
Studies show that financial literacy is directly linked to higher savings rates, lower levels of high-interest debt, and better financial decision-making. Yet, despite its importance, financial education remains inconsistent across the country.
Personal finance is a leading cause of stress in relationships, and many young adults graduate without the financial skills needed to manage credit, debt, and savings. Improving financial literacy can lead to greater financial stability and long-term success.
The four pillars of financial literacy: Debt
Debt—especially the credit cards and student loans—is a dream crusher. It holds us back from being able to do things that we want to do: get married, buy a house, travel, and even retire. Let’s put a focus on getting these debts paid off and have a plan of attack to do this. I prefer the snowball method.
Also, as a reminder, credit cards shouldn’t be used as a loan—they should be looked at as a convenience to use while you have the money in the bank to pay for that item. Use credit cards to make money, not to lose it.
Budgeting
Without having a thorough and complete budget, how will you know what extra funds you will have to focus on paying off debt? Even if you don’t have debt, you need to know how much you have left over each month for other financial needs like savings and retirement.
I recommend writing down every expense that you have and comparing it with the “net” income that you receive each month. Hopefully, you have positive cashflow. If you don’t, you will need to start cutting your budget and eliminating things that are not a necessity. It might come down to what is a want and what is a need—like multiple streaming channels that you don’t watch anymore or those expensive coffee runs might be some easy options to cut.
Savings
Saving for emergencies is vital. We tend to have a short memory when it comes to surprises in our lives: car repair, home repair, medical expenses, dental work, and helping the kids out are all reasons why we need to avoid living paycheck to paycheck. I recommend for those working to have 3-6 months of your monthly expenses in the bank or cash available. Once in retirement and living on a fixed income, you should have 6-12 months of your expenses put aside because retirees don’t like surprises. Again, a good, solid budget will help you address the amount you have to put into savings.
Investing
We all have to start somewhere. Most people have employer-sponsored plans now that eliminated most pension benefits. I recommend that when you are offered a 401K or similar plan to start investing right away and start with whatever the company match is. So, if your employer is contributing up to 5%—you should contribute at least 5% as well—otherwise you won’t get their full match.
As you get promotions and raises, you should be increasing your contributions each time you get a raise. You can set this up so it will automatically increase your contributions based off of your income rather than a set dollar amount.
The contributions can be made to a “pre-tax” account or to a Roth account. I do recommend the Roth option, but definitely call the office to see if this is the best option for your tax situation.
Contribution limits are: $23,500 for those under age 50, $31,000 for those 50 and older, and those ages 60-63 can now contribute $34,750 to help catch up even faster as they are closer to retirement.
Mike Kojonen
Mike Kojonen is an Investment Advisor Representative and the founder and owner of Principal Wealth Services and Principal Preservation Services. He can be reached at: zvxr@cevapvcnycerfreingvbafreivprf.pbz
