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10 Incredibly Valuable Financial Literacy Tips

April of 2023 marked the 20th annual celebration of Financial Literacy Month. This month was established to help raise public awareness of the need for greater financial literacy. We fully support this mission.

In fact, we would argue that one of the more remarkable shortcomings in U.S. public education is our failure to teach students even basic financial literacy. While students are frequently moved to ask why they must learn about the works of Renaissance-era philosophers or the primary operations of trigonometry (which we also think are pretty important), few would question the value of incorporating some meaningful personal finance education into the broader curriculum.

But until financial literacy does become a standard part of educational curriculum, we’ll do our best to fill in some of the gaps here. The 10 financial literacy tips that follow are designed to lay the basic groundwork for everything that you must know to survive, and perhaps even thrive, in the U.S. economy.

This is by no means meant as a comprehensive education. Each of these tips can (and should) be followed by your own independent learning. That said, we will be happily providing you with numerous links to our own resources on each of these key subjects. Feel free to dig deeper on each of these subjects at your convenience.

But wait…there’s more good news!

These financial literacy tips are not at all specific to a given tax bracket. These tips are neither for rich nor poor, but all who wish to begin the journey to greater financial literacy. In other words, these financial literacy tips should be valuable to you no matter your financial situation.

With that said…

1. Learn How to Budget

Financial literacy begins with knowing how to manage your own money. Before you can even start saving, you must learn how to keep a realistic and sustainable budget for yourself. Creating a budget means tracking your spending, factoring in your expenses, and setting clear financial goals for yourself.

Part of your crash course in financial literacy will be to recognize the importance of budgeting as a foundation for managing personal finances effectively. Indeed, it all starts here. Develop a strategy for tracking your monthly income and paying your monthly expenses while simultaneously budgeting for recreational activities and savings.

One of the more popular and basic strategies for budgeting is the 50/30/20 rule. Here, 50% of your monthly income will go toward meeting your fixed expenses; 30% will go toward your recreational and discretionary spending budget; and the remaining 20% will go toward savings. 

Naturally, as your financial goals become more nuanced and as you make more money, your budget may be subdivided in a number of different ways. But the 50/30/20 rule offers a great starting point for those just learning how to balance a household budget and achieve some measure of financial discipline

For a deeper dive and a few actionable strategies for actually creating a budget you can keep, check out our article on how to begin budgeting for your household.

2. Learn How to Save Money

If you are following the 50/30/20 strategy outlined above, then you are already putting 20% of your monthly paycheck toward your savings goals. But now you’ll want to dive a little deeper. What are the best strategies for saving toward your specific goals?

There are a number of different dimensions to savings. In most cases, you’ll want to begin with a simple savings account, preferably one boasting the best interest rate. Of course, your best interest rates will generally be found through investing, which we’ll discuss in the section hereafter. However, a savings account is truly one of the surest ways to keep your money safe.

The real benefit of a savings account is that many of these will allow you to make regularly scheduled, automated withdrawals. This can make it easy to place money in retirement savings, vacations funds, college funds, an emergency fund, and in other accounts that are specially earmarked for specific financial goals.

As you make more money, you will likely also begin to put a larger portion of your earnings into savings. At this point, you’ll want to explore financial planning options that allow you to maximize your savings and increase your wealth.

And if you feel like saving has always been a challenge for you, you should know that you’re not alone. We invite you to check out our article on savings and why so many other Americans also struggle to meet their savings goals.

3. Understand the Basics of Investing

As noted above, even the best interest bearing savings account will pale in comparison to the returns you are likely to see on the stock market. However, it’s important to understand the stock market, know how it works, and understand the risks before you explore the countless financial products at your fingertips.

You should be aware that there are numerous options available for investing including stocks, bonds, mutual funds, and retirement accounts. Indeed, most Americans with a retirement plan through their place of employment will already be invested in low-risk, long-term pension funds.

But investments also represent a way to truly improve your financial standing. In your mission to become more financially literate, take time to understand some of the most effective strategies for building wealth over time. Understand your own threshold for investment risk and know how to begin building your own investment portfolio. Consider speaking with a financial advisor as you navigate the very complex field of equities and investing.

Of course, the only real way to learn how to invest is to begin doing it yourself. But as a beginner, you’ll want to minimize your risks. We advise jumping to our article on how to start investing with a modest budget.

4. Learn Credit and Debt Management

Your credit rating carries tremendous importance when it comes to both fulfilling your financial needs and meeting your long term goals. But how exactly does credit work? What factors go into your credit report?

Well, in the simplest of terms, your credit rating is based on your history of paying back your debts on time. These debts may come in the form of credit card bills, auto loan repayments, student loans, rent, medical debt, mortgages, and more. Factors like the timeliness of your repayment and your overall debt relative to your line of credit will have a direct impact on your credit score.

But it’s also essential to build a meaningful credit history, one that demonstrates that you can be trusted to repay borrowed money on time. In other words, in order to borrow money in the future for a major purchase like a home or auto loan, you must have a demonstrated background of responsible loan repayment.

For most people, this is where credit cards come in. It’s important to build credit by using credit cards responsibly. This all points to the fundamental importance of understanding how credit cards work, knowing how to choose a good credit card offer, knowing how credit scores are calculated, learning how to read your credit report, managing and minimizing payments for interest rates, and more generally, knowing how to borrow and repay loans responsibly.

Learn how to responsibly manage and reduce debt, including credit card debt, student loans, and mortgages. Learn how this can contribute to building credit and qualifying for various borrowing opportunities including home mortgage and auto loans. If you’re facing credit challenges, start with a look at our tips on how to improve your credit scores. Or, if you’re a student just getting started, check out our tips on how to begin building your credit without running into trouble!

5. Know How to Navigate Banking

As we’ve already noted, a savings account is often a great place to get started as you learn how to save money. But there are actually countless different types of bank accounts for saving, spending, investments, and more.

Part of your financial literacy education must be to learn about the different types of bank accounts, banking services, and financial institutions at your disposal. Understand how each of these options can connect to your financial goals.

Learn the benefits such as interest-bearing growth, consumer rewards, and access to unique financial products. And be aware of any potential fees or penalties associated with various banking products. If you already have a savings account, your next step may be to open a checking account at your local bank. A checking account gives you the opportunity to learn how to manage your spending budget, pay your monthly expenses and, in most cases, deposit your paycheck.

If you’re not sure what the best type of account or financial product is for your situation, jump to our article on how to choose your first bank account for more!

6. Learn How to Prepare for and File Your Taxes

Taxes can be complicated. And honestly, if I can be forgiven for using a tired millennial phrase here, it’s probably one of the worst parts of adulting. In a general sense, understanding taxes means coming to terms with the fact that you will be giving a not insignificant portion of your own money to the government with every paycheck.

It’s never fun, and it rarely helps to remind yourself that somebody has to pay for road repairs and trash pickup. But, it is a part of life and a major part of your financial literacy. You should understand the basics of income taxes including how to file your tax returns, how to make the kinds of standard deductions that can save you money, and how to keep accurate records of your income and spending.

And once you get past the basics, you can dig into the far more interesting topic of reducing the amount you pay in taxes. There are lots of perfectly legal ways to lower your tax burden and improve your overall financial outlook at the very same time. This can include placing pre-tax money in retirement and health savings accounts, writing off charitable donations, deducting expenses for working from home, and much more.

But this process can be complicated, and you obviously want to be careful to report only accurate information about qualified expenses. This starts by remaining well organized throughout the year. Keep records of your qualified expenses, receipts, billing statements, pay stubs, employer tax returns, and any other materials that will factor into filing your taxes. If you begin this process early, and continue to maintain your records throughout the year, it can make it much easier to take on your taxes once next January comes around.

Indeed, it should put you in a prime position to start working on your taxes well ahead of the April deadline, to remain well organized throughout the process, and to take your time. For a few friendly tips on reducing your tax burden, jump to our look at ten ways that you can save money on your taxes.

7. Know How to Navigate Insurance

Insurance is among the most complex topics that you’ll have to navigate. There are numerous types of insurance, and each exists in a marketplace with different tiers of coverage, different premiums and payouts, and a whole web of differing terms of service. You’ll want to start by familiarizing yourself with the different types of insurance coverage, such as health insurance, auto insurance, and renters or homeowners insurance. Understand the importance of insurance in protecting against unexpected events and mitigating financial risk.

But bear in mind, the insurance landscape can be confusing, especially as you age and your healthcare needs expand. Healthcare alone can qualify as a burdensome cost for many aging retirees. The decisions you make with regard to health coverage can have extremely significant financial implications in the long run.

And of course, this is only one form of insurance. There are countless others that vary from mandatory to advisable to entirely optional. Fortunately, we offer tips on everything from choosing affordable car insurance, to finding the right life insurance policy for your needs, to selecting the right small business insurance

8. Be a Savvy Consumer

It goes without saying that we spend most of our lives spending. We are forever shopping and paying bills, both for essentials like housing, clothes, food and other living expenses, and on optional purchases like vacations, home decor, and recreational items. Refer back to the 50/30/20 rule. If that 20% is reserved for saving, the rest is destined for spending.

So it’s obviously extremely important that you learn how to do it right. But being a savvy consumer is about more than just self control. It’s also about knowing how to navigate your purchases to make sound investments.

This starts with knowing your rights and responsibilities as a consumer, including how to make informed decisions when purchasing goods and services, how to spot common consumer scams, and how to save money without sacrificing quality.

It’s also important to understand the impact that economic realities may be having on your household and adjust accordingly. For instance, today consumer inflation is having a very real effect on the bottom line for American families. For a deeper understanding of this economic trend, and strategies for navigating our current realities, jump to our article about how inflation is impacting everyday consumers.

9. Protect Against Financial Fraud and Identity Theft

In the section above, we noted that part of being a savvy consumer is protecting yourself against identity theft and other forms of financial fraud. Identity theft can have a direct impact on your credit rate, may cost you a fortune, and can result in lasting damage to both your credit and your overall financial outlook.

Know about common financial fraud tactics, phishing scams, and forms of identity theft. Recognize the telltale signs of fraudulent websites and scammy ecommerce operations. Be careful about the type of information you share on social media or over the phone. Learn how to protect your personal and financial information both online and offline.

For a few key tips, jump to our article on how to protect yourself from identity theft and other forms of financial fraud.

10. Identify and Plan for Long Term Financial Goals

Set long-term financial goals, such as buying a home, starting a family, or planning for retirement. Understand and learn how to prepare for the financial implications of major life events, such as marriage, children, retirement, and end of life planning. Build a financial plan that accounts for your savings goals, retirement vision, your long term health care, and more.

This is a particular area where you might benefit from the support of a financial advisor, one who can help you identify the types of financial products and personal financial management strategies most likely to lead to the financial future you envision.

Not sure where to begin? Check out our article on financial planning for retirement and start building toward your savings goals today.