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, called “Financial Literacy among the Young” showed less than 33% of 20 to 30 year olds had a basic knowledge of interest rates, controlling investment risk, or inflation. The survey showed that though people are willing to learn, they are not educated on basic financial issues.
If you count yourself as one of the millions of Americans who has a lot to learn in terms of finances, then do your own research. 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. It’s easiest to write everything down in a notebook or find software that can help. Mint.com is one example of a website where you can keep track of your own budget. Once you figure out whether or not you have a surplus or a deficit at the end of your accounting period, you can start cutting back on unnecessary items.
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. Pay them off right away, as you don’t want those hyenas to get their hooks in you. 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 flexible, and best of all, tax free. Typically, a lot of workplaces have an IRA available, and take advantage if your company offers matching contributions. If your company doesn’t match your IRA, then stay with your own Roth IRA.
Insure yourself
For anyone with young children or other dependents, life insurance is a necessity. A rule of thumb is to have life insurance covering 8 to 10 times your annual income. That may sound like a lot, but it isn’t. Once you die, your loved ones, especially young children, will need money to sustain themselves. If your income is $ 80,000, for sake of argument, you should get $ 800,000 in 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. Though it looks like the economy is on an upswing, it doesn’t mean by any stretch it’s 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 best to get into the hard work of picking apart spending habits and changing them as soon as possible. Your financial future depends on it.