In 2010 the US Department of Education released a series of recommendations on providing personal finance education in secondary schools. According to Tony Hobman, Chief Executive, Consumer Financial Education Body (CFEB), providing personal finance education in schools is the best opportunity to embed a basic understanding of financial matters in our young people. However, there are millions of people who were never given the opportunity to learn about personal financial management. Maybe you are one of those people.
You may be like millions of other Americans who become extraordinarily anxious when the topic of money comes up. Maybe you are already in debt. Maybe you don’t pay your bills on time and maybe you’ve never saved a dime in your life. The prospect of starting now seems overwhelming. Let’s face it. It’s easier to live in denial than it is to face your financial woes head on. But if you do, you’ll be glad you did.
The first thing you should know is that you’re not alone. Consider that one-third of adults, or about 75 million people don’t put any part of their annual household income toward retirement. Although remaining level since 2009, this figure increased by five percent since the 2008 survey — putting consumers in danger of being ill-prepared for retirement.
According to Military.com, 30% of US adults report that they have no savings. “These people are on a very slippery slope when emergencies pop up. Indeed, one in four say that if faced with an emergency, they would charge that expense to a credit card (25 percent) or take out a loan (29 percent), adding to their debt load with yet another bill.”
According to a poll commissioned by Fifth Third Bank and conducted by Research Now, the majority of Americans don’t know the maximum younger people can contribute to a 401(k) and many survive paycheck to paycheck. Research Now also found that 90% of Americans did not know that those under the age of 50 can contribute up to $18,000 a year to a 401(k) plan. And it gets worse from there. Of those surveyed, only 38.5% knew the annual percentage rate (APR) on their primary credit card and 60% didn’t have enough savings to survive for at least six months. So if you don’t have any savings or if you are in debt, it’s time to take control. It’s easy to get overwhelmed and give up. That’s a pretty natural reaction when we don’t want to face the hard stuff. But it’s vital that you take small manageable steps, so that you might protect your financial future. So what do you do first?
Take stock. It’s time to get real. What do you make? How much do you bring home each month? How much debt do you have? How much money do you place in savings each month?
Financial concerns are often as unique as the people who have them. But there are some basics to get down now. If you have debt, pay it off. Make it your first priority. Stop eating out. Stop buying movies OnDemand. Stop going to Starbucks on the daily. Cut out every frivolous expenditure that you make everyday. And when you cut it out, write it down.
Keep a daily accounting of what you spend. Nothing is more sobering than seeing your spending habits in black and white. Fitness coaches ask their clients to write down everything they eat each day and submit that journal to them each month. It’s harder to deny the truth when it’s right in front of you. As a result, you are more accountable for your actions. Whether you are going on a financial or food diet, this technique works. When you’ve taken care of your debt, it’s time to get serious about saving. Here’s what you can do.
The 50/20/30 guideline. 50% of what you spend each month should be on fixed expenses or those expenditures that don’t change from month to month like rent or mortgage payments, utilities and car payments. You may also include gym memberships or Netflix accounts, etc. However, the latter items should be the first to go if you are trying to save money or pay off debt.
20% of your take home pay should be placed in some sort of saving plan such as a 401(k). In addition, you can take a portion of this money and place it in an emergency fund. You have flexibility here depending on your life goals. You may also decide you will use a portion of this money to start saving for a down payment on a home.
30% of your take home money should go towards something called flexible spending. Flexible spending items include groceries, general shopping, subscriptions, entertainment, etc. If you’ve got to get your debt paid off, this is where much of your money can come from.
There’s help. As you dive in to the world of personal finance, you may be more overwhelmed than you imagined. So what else can you do to get a handle on it all? Seek help. If you don’t want to visit a credit counselor or a personal finance manager, there are several free personal finance software programs or apps out there for your consideration and use. Do your research and find one that works best for you. However, you may find that meeting one on one with a debt or credit counselor is more beneficial than not. They are there to help you create a plan and make tough choices as you strive for financial freedom.
Personal finance can be emotional and upsetting. But with education, effort and persistence, you can do it. It just takes a lot of education and a little time.