April is National Financial Literacy Month. It’s a reminder for us all to take a moment and focus on goals for the year ahead.
Maybe you’d like to save up for a family vacation or a new car? Taking a moment to reflect on your financial future can help you better prepare for things like that and more.
But what IS financial literacy?
Financial literacy is the ability to understand and manage your money. It’s a life skill that includes budgeting, saving, managing your debt, taking steps to prevent identity theft and understanding simple interest contracts.
In simple terms, financial literacy is the ability to make informed decisions about money and financial matters.
How do you improve your financial literacy?
The following are five important steps to financial literacy that can help you on your financial wellness journey:
Budgeting
Creating and sticking to a budget is the foundation of good financial planning. A budget helps you track your expenses, plan you spending and save for the future. It’s important to understand your income, expenses and debt to create a budget that works for you.
Saving
Saving is an important habit to develop for financial success. It’s important to save for emergencies, retirement and other financial goals, such as a down payment on a car.
Getting started with saving
To try to successfully start saving money, you need to answer two questions first:
- How are you going to save? – Will you choose to have a portion of your paycheck automatically deposited into a savings account? Will you make the payments yourself? In either case, how much?
- Where are you going to hold your savings? – A savings bank account where you currently bank is likely the easiest place to start, but does it earn you the most interest? Does your job offer options for savings? If you needed to withdraw money for an emergency, is it difficult to do so?
As you research your options to begin savings, you should determine what option works best for your specific financial situation.
Debt management
Debt can be a useful tool when used wisely, but it can also be a significant source of financial stress. Understanding how to manage debt, including credit cards, loans and mortgages, is important for keeping a good credit score and avoiding financial pitfalls, such as borrowing more than you can realistically pay back.
Identity theft prevention
Identity theft is a fairly common crime that could impact your financial health. Keep your personal information private, and make sure you check your credit report regularly to make sure you recognize all the items in it. If you’re diligent about preventing identity theft, you could save yourself a big headache down the road.
How simple interest contracts work
Understanding how your auto loan contract works is a key factor in leveling up your financial literacy. A simple interest contract accrues interest daily, so it’s very important you pay your car loan on time.
Financial literacy is important for your overall financial well-being. Keep that in mind this April and remember to pre-qualify with Drive®.
