November 2017 Volume 14

TEN IMPORTANT FINANCIAL LESSONS

Hugh Reid
Text Size
  • -
  • +
  • reset

Nearly two thirds of Americans cannot pass a basic financial literacy test according to a National Capability Study by the FINRA Foundation, which surveyed 27,564 Americans, from June through October of 2015. FINRA is a quasi-government organization that regulates brokers and Wall Street. Whether you are in the financially educated or financially illiterate group, here are ten important financial lessons to action for financial success:

1.Prepare and stick to your budget. Do not live paycheck to paycheck. More than two thirds of Americans live paycheck to paycheck and this is the major reason for their inability to save. Seek advice and use your collective financial skills and perseverance to create and stick to your budget.

2. Pay your self first. Automate your savings by establishing automatic deductions from your salary to fund your savings and investment goals. This eliminates the temptation to not make the transfer to your savings or investment account when you have to manually do this yourself.

3.Build an emergency fund. Being ready for the unexpected is always a good idea. Work toward an emergency fund that can cover three to six months of living expenses, so you can handle job losses, repairs and medical emergencies without resorting to debt.

4.Focus and develop your business/career. Most of the super rich gained their riches through creating a business (marrying or inheriting your wealth are the other major ways). If you are not entrepreneurial, working your way up in your career is the next best way to grow your income. Continually work to understand changes in your field and look for higher-paying positions to maximize your income potential. Don’t be afraid to take career risks.

5.Invest in yourself. Your income potential is your greatest asset, so it pays to continually invest in your own professional development. A good rule-of-thumb is to reinvest three percent of your annual income in professional development such as conferences, classes and certifications.

6.Avoid unnecessary debt. When you take on debt, you need to make sure you can repay it and ideally that the debt will help you to generate additional income or reduce expenses. Try and keep your monthly necessary debt payments (including rent or mortgage) under 36 percent of your monthly income. This will make it easier to make payments without stretching your budget. Continually work to minimize debt and only take it on when absolutely needed.

7.Talk money with your spouse and children. The easiest way to derail your financial plans is to have you and your family working at cross purposes financially. Get on the same page about money early and continually discuss and update individual and family goals and plans.

8.Prioritize retirement savings. More than half of Americans have less than $25,000 saved/invested for their retirement. It is hard to focus on saving for something so far away, but saving for retirement now will help you increase your long-term savings through compound interest. The longer the account exists, the more interest is built. Get as much money as you can into retirement accounts now so you can better prepare for your future.

9.Use insurance to transfer risk. Life insurance is a critical risk mitigation measure when you are in your asset accumulation years (25-55) and untimely death could leave your dependents with liabilities and reduced income to meet living expenses.

10.Splurge where it matters. Save in advance and allow room in your budget for things like travel, high-quality equipment to pursue a favorite hobby or life’s small pleasures. You likely will not regret spending your money on life experiences and good quality items that will last, so it is good to find a balance for enjoying life now and saving for later.

If you successfully implement these ten financial lessons you can set yourself up for a solid financial future.

Top of Page