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Finance has always been a major cause of stress for adults. Everyone can relate; even the wealthiest people have felt financial pains at one time or another. Debt and/or a lack of savings can cause considerable hardship on a person's life. And it doesn't just cause daily stress. Financial problems can lead to divorce, poor health, depression and bankruptcy.
Now, with COVID throwing the world into a state of flux, these stresses have been amplified. Millions of Americans have lost their income, and those who haven’t are worried they might be next. If this catastrophe has shown us anything - the need for financial education and literacy has never been more critical.
Finance can be intimidating, but you don't have to be a sophisticated investor to understand enough to be financially healthy. Being financially healthy means you know the difference between good and bad debt, and know how to avoid crushing credit card debt. You understand the importance of saving often so you can feel secure in your future. It also means that no matter your stage of life or income, you know how to live within your means, stick to a budget and spend responsibly.
The first and easiest step to becoming financially literate is to step back and take a look at your own financial world. Start with your budget. Remember, a budget is not meant to be a form of torture - it’s simply a record of how much you make, versus how much you spend. Look at the past three months of spending, and categorize your expenses into fixed and discretionary. Fixed are things like mortgage, car payments and phone bills. Discretionary is travel, entertainment and clothing. The goal of any budget exercise is to ensure you are making more than you are spending. If you’re not, start cutting down the discretionary expenses.
The next step is to address any credit card debt you may have, and create a payment plan to get the balance down as quickly as possible. If you have high interest credit cards, consider transferring them to a lower one.
Once you are on track with your budget and debt, create a savings plan. There really is no ‘wrong’ way to save. If you don’t have an emergency fund, I recommend starting with that. Your ultimate goal is to have at least three months of income saved - but start with saving $500. That will get you through if a house, car or medical expense strikes. And give you a little needed peace of mind. Once you have a comfortable safety net, start putting away into a retirement account, like your company’s 401k or an IRA. Even if it’s just $25 / month - start with whatever you can. The most important part is to start.
COVID-19 has painfully shown us how important it is to have these basic personal financial skills. Your level of understanding around these fundamentals impact every part of your life, and can mean the difference between prosperity and poverty. Especially when disaster strikes.
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