Are You Uneducated about Finances?
National Bureau of Economic Research
There is more bad news according to a recent survey done by the National Bureau of Economic Research. The survey, titled “Financial Literacy among the Young” showed that fewer than 33% of young adults from 20 to 30 years of age have a basic knowledge of interest rates, inflation and how to control investment risk. The survey indicated people are willing to learn, but don’t know some of the most basic financial issues.
If you think you’re one of the people that has a lot to learn about finances, you better do your homework, post haste. We got some tips for financial management for you. Even a basic understanding can make a huge difference later on up the road.
Your budget is key
You may be tired of hearing about the budget, but the budget is Number One when it comes to finances. You should be aware of how much you make, how much you spend, and the surplus or deficit left every month. The easiest way to do this is to either write everything down in a notebook or find some online software that can help. Mint.com is a website where you can keep track of your own budget. Once you figure out whether or not you have a surplus or deficit at the end of your accounting period, you can start cutting back on unnecessary expenditures.
Build up savings
Your parents were right: Cash is king. Parents in generations past knew you had to put money aside. Somewhere along the way, we forgot the value of saving and became enamored of credit. We started spending more than we really had. How do you fix that? Start saving again, just like your parents did. The best thing to do is take a percentage out of your paycheck and set it away before spend money on anything else.
It’s not always wise to use credit
Credit-card debt is a huge expense for a lot of families, and it can cause enormous problems. The best things to do with credit cards, is to use the buggers for occasional small purchases. Then pay them off right away. Costs of credit are FAR too much to have any kind of balance for long. Even if you have a relatively low interest rate, you are still paying much more than you would if you paid with cash.
Plan for retirement
The Roth IRA is a great retirement-planning tool. It’s a flexible and tax-free retirement plan. Typically, a lot of workplaces have an IRA available, and take advantage if your company offers matching contributions. If your company can’t or won’t match your IRA, stick with a Roth IRA.
Insure yourself
For anyone with young children or other dependents, life insurance is a necessity. A general rule of thumb is to have enough life insurance to cover eight to ten times your current annual income. That may sound like a lot, but it isn’t. When you die, your loved ones, especially young children, will need money to get by. If you make $ 80,000 a year, for example, you should buy $ 800,000 of coverage. If your family has to live on that money for 15 years before they are old enough to manage by themselves, that’s only $ 53,333 a year.
Managing finances wisely
If we’ve learned just one thing from this recession, it is that wise decisions are key to surviving a tumultuous economic market. Although things are on the upswing right now, that doesn’t mean that things are back to normal. People stuck in debt before the recession began don’t have the luxury of waiting to sort their finances out. It’s better to get to hard task of analyzing your spending, and changing them right away. Your financial future depends on it.