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What's your money IQ?

Next week is national money smart week, a national effort to help raise financial literacy across the country. Research has proven that people are more financially secure when they develop a strong foundation of financial skills.  Being money smart starts with foundational principles and builds upon this basic knowledge. No matter one’s stage in life, there is the opportunity to develop your financial IQ.
What is the first key of being money smart?
The foundation for becoming money smart is knowing the difference between needs and wants. For most people, the basic needs are all about the same it is what we want to have that creates different spending habits. Making spending decisions based on what you really need drives the rest of your financial decisions.
What would be the next most important skill?
Probably the single most important financial concept after understanding needs versus wants is to not live beyond your means. This requires one to become a better money manager so that they understand how to manage their cash flow.
What is a foundational financial activity that can help people better manager their money?
The most important activity for managing your money is knowing how you are spending it. Where and how much are you spending is the basis for developing good money habits and finding ways to lower expenses and save more. Without this knowledge, it becomes very difficult to make changes to improve your financial well-being.
What is the best way to get an understanding of where your money goes?
The best way is developing a budget and tracking your expenses as it relates to your budget. Some people find the entire budget process to be too stressful and will abandon the budgeting process all together. If this sounds like you, take a simpler approach and just track the expenses you can control – eating out, entertainment, gifts and other activities that you can limit or eliminate.
Is there a quick rule of thumb for budgeting that someone can use if they don’t want a complete budget?
One of the most popular budgeting techniques is the 50/20/30 rule.  Allocate 50% of your net monthly income towards essential costs such as transportation, food, housing and utilities. Allocate 20% of net income to debt reduction and/or savings.  Finally, use the remaining 30% for non-essential items like cable, eating out, entertainment and other activities. If you want to pay off debt faster, move your non-essential budget down and allocate it to your debt reduction category.
What is the activity that shows you have moved beyond the basics of financial literacy?
Developing a roadmap for your life financially – short term, long term goals included as well as having alternatives if financial situations change. Planning for all of life’s potential problems is the ultimate in financial literacy.  This roadmap would include actions such as: buying life insurance & disability insurance, planning for major life events (home, baby, college), paying down debt (credit card, student loan) developing a retirement budget, and many other financial events over the course of your lifetime.

Posted: 4/21/2016 with 0 comments

Categories: Financial, Money, Money Matters

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