Financial Literacy Month is a great time to reflect on your situation. No matter where you?re at with your money, reviewing the financial basics can help you stay on track.?
This blog post was written as part of a sponsored program for State Farm?. All views expressed are entirely my own, and were not influenced or directed by State Farm.
In the 10 years I?ve been writing about money, I?ve noticed that it can be tempting to try to make your finances complicated. There are tips and tricks everywhere, promising to help you game the system and get ahead. While these strategies can help you in some cases, the reality is that observing basic financial principles are far more likely to result in long-term financial stability and success.
For Financial Literacy Month, I did my own financial checkup to remind myself that no matter how crazy life gets, there are some basic money moves that can ensure that I stay on the right track:
1. Track Your Spending
Can?t seem to live within your means? The first step is figuring out where all the money is going. When I first started tracking my spending, I was shocked to discover that a large percentage of my money went toward things I didn?t really care about.
Once I started paying attention, I began setting priorities for my spending, and deciding if each purchase was really worth it. Living within my means became easier after I saw what I had been doing with my money ? and vowing to change where my financial resources went.
Today I still track everything I spend, and when I find myself wondering why I don?t have enough money for something I want, I review my last few purchases to see whether or not I?m letting things I don?t care about creep in there.
2. Save for a Rainy Day
Without savings, I wouldn?t have been able to make two cross-country moves in the space of a year, or get through my divorce without serious problems. Today, my savings is helping me manage the medical bills that come with breaking your wrist and having surgery.
It?s the most basic of financial basics, but saving for a rainy day is one of the best money moves you can make. I like to automate my savings, whether it?s for my emergency fund (in a tax-deductible investment account), Roth IRA, or a short-term goal. Building up a rainy day fund is important if you want to reduce how much you borrow when you are in a pinch.
3. Protect What You Have
Many of us overlook insurance, but it?s a big part of laying a solid financial foundation. You work hard to afford your car or your home. The unexpected can mean an unaffordable situation. I think about this a lot more as my son prepares to drive. I?ll have a teen driver next summer, and if he gets in an accident, I want good insurance that will help us recover ? without the need for me to drain my savings.
Insurance is designed to protect your finances, whether it?s a burglary, natural disaster, or injury. The right life insurance policy can also protect your family from financial devastation if you pass early. When putting together your financial plan, don?t forget about insurance.
4. Invest for the Future
Saving for short-term goals is good practice since it helps you avoid debt spending for the things you want. I?m in the process of automatically setting aside money each month for a vacation next summer. But while you are taking care of short-term goals, don?t forget to invest in your future.
Many of us think that investing has to be complicated, but it doesn?t have to be at all. Start with as much as you can spare each month, and invest it. The earlier you start, the better compound interest can work on your behalf. If you want to build long-term wealth and live comfortably later, investing now can be a good step.
Many people are surprised when I say that giving to charity is one of the money moves that can help your finances, but it?s true that giving comes with financial perks. First of all, if you make giving a priority, it forces you to re-evaluate your finances and make a money plan that allows for giving. Better financial organization is always a plus in my book.
I also give locally in a way that helps my community stability, which is a plus for everyone?s finances, since businesses thrive (and the rest of us do, too) in an area that is more stable. And, of course, don?t forget that you can take a tax deduction for your charitable giving if you itemize.
Once you have the financial basics down, you can build on that foundation for a better future. You might be surprised at far you can get with just a few simple money moves.