For nearly 20 years, April has been recognized as Financial Literacy Month. The recognition aims to highlight the importance of gaining practical money management skills and to support systems for teaching Americans how to establish and maintain positive, healthy financial habits. The Lakeshore checked in with Holland area financial adviser Stacey Workman for some tips on how to increase financial stability.
The Lakeshore: Many people worry about finances. Statistics show only 40% of adults use a budget and track spending, while 76% of adults live paycheck to paycheck. Sometimes people don’t know where to begin when they are trying to make their money go further. What’s a good first step?
Establish a budget. If you’re going to succeed at achieving multiple financial goals, such as paying down debt, buying a home, or starting a family, you’ll need to know where your money is going. Setting a budget and sticking to it may seem difficult, but once you’ve gotten into the habit, it will become easier — and for many people, following a budget actually gives them more of a sense of control over their finances. Over time, expenses related to your life will change, so you’ll need to adjust your budget accordingly.
TL: For many people, especially those living paycheck to paycheck, setting financial goals is difficult because of unexpected expenses that cause setbacks. How can they guard against that cycle?
Build up your emergency savings. Try to build an emergency fund containing three to six months’ worth of living expenses, with the money held in a low-risk, liquid account. This will help keep you prepared for unexpected expenses, such as a major car repair, job loss, or health event. Having money set aside for an emergency should be your first priority.
TL: Once they have an emergency fund, what’s the next step toward financial stability?
Establish your credit. According to FICO, you can do three things right now to help your credit score:
TL: Money is such a daily necessity, with in-the-moment demands tending to squelch any thoughts beyond today’s needs. What can be done about that?
- Check your credit report. The three credit reporting companies — TransUnion, Equifax, and Experian — are required to give you a free copy of your credit report every 12 months, but you must request it. To learn more, visit annualcreditreport.com.
- Set up payment reminders. Late payments can have a large impact on your credit score. Payment reminders or automatic payments can help you stay on track.
- Reduce the amount of debt you owe. It helps to keep your balances as low as possible on your credit cards. Pay off debt rather than moving it from one card to another, and carry only as many cards as you need.
Keep long-term goals in mind. While it is important to make sure your short-term financial goals are met, you can’t forget your long-term goals. During your working years, try to consistently contribute as much as you can afford to your IRA and your 401(k) or another employer-sponsored retirement plan. Put in as much as you can afford each year and increase your contributions when your salary goes up. Within your plan, you’ll want to choose a mix of investments that can help provide the most growth potential, given your individual risk tolerance. Also, even if you contribute to a 401(k) or similar plan, you may also be eligible to fund an IRA, which gives you even more investment choices. The earlier you start investing, the more opportunity your money has to grow for your future needs.
TL: Finding ways to achieve these financial goals can seem overwhelming, and it can appear that progress is taking forever. What is your advice for sticking with your plan through the long haul?
Track your progress. Each of your strategies is designed to achieve a particular goal, so you need to monitor the performance of the investments within that strategy to help ensure you’re making progress. If it seems that you’re lagging, you may need to explore ways to get back on track. To manage these tasks successfully, you may want to work with a financial professional — someone who can look at your situation objectively, help you identify and quantify your goals, and suggest strategies designed to help you achieve them. Trying to achieve multiple financial goals can seem like a daunting task, but by saving and investing consistently through your working years, following a clear strategy, being willing to prioritize and accept trade-offs, and getting the help you need, you can help yourself move forward.
Stacey Workman is a financial adviser with Edward Jones in Holland, Michigan. She holds AAMS, CRPS, and CRPC professional designations and has nearly 30 years of experience working in the financial services industry. She enjoys helping her clients create personalized, purpose-driven strategies to help them reach their financial goals.