Today, inflation is exceeding the proportion of wage raises, diminishing the buying power for millions of Americans each year. According to Investopedia, "financial literacy is the education and understanding of various financial areas including topics related to managing personal finance, money and investing." (2018).
When new students enter college, they need to think about all incoming expenses and loans they will accrue for their futures. To acquire financial literacy also involves mastering other concepts of investing, personal finance, and the time value of money. Below are some tips and tricks on budgeting and handling personal finances.
One of the first and essential steps for a successful personal finance plan is the ability to budget. Although it seems like something you don’t have to sit and plan, it is a process that requires a hard look at to reach any financial goals. This means it is important to take the time to account your expenditures and analyze your overall cash flows and long-term investments. There are a few steps you can take to start your own personal finance plan:
1. Start tracking monthly expenses
This is the basis for your budget. There are many helpful apps on your phone where you can write down your monthly expenses and use every time you spend money. The other option is to simply write them down on a notebook in categories of priorities to least important. Priorities might include: food, rent, mortgage, car and credit card payments, insurance, utility bills.
2. Calculate your totals and prioritize!
Tracking your monthly expenses can be more accurate when factoring in not only the past month but a few months prior. This will help give you an estimate of how much you are spending, on average, per month. Then study what categories you are spending most or least and find ways for lowering your monthly bills and rationing miscellaneous activities like attending music festivals or eating out daily.
3. Set SMART goals
SMART goals are specific, measurable, attainable, relevant, and time-based. After listing the information you have tracked, make a list of all the financial goals you want to accomplish in the short- and long-term. A short-term goal is one you plan to accomplish within a year, such as building up your credit score. A long-term goal can be something you plan to accomplish in longer than a year, such as investing in a 401k or in an investment portfolio.
4. Factor in savings
Part of successfully budgeting is creating a savings plan to avoid sudden financial crises or for long and short-term savings goals. Building an emergency fund can make a great difference. Plan ways to start saving, and when making purchasing decisions on credit, limit your credit card's accruing balance to no bigger than 30% of the card's maximum limit (i.e. if the limit is $500, avoid spending more than $150 on the credit card to increase the likelihood of paying the balance in a timely manner).
Jennifer Lara, State Treasurer
Alex Capi, State Secretary