April is Financial Literacy Month. As you prepare your taxes each year, it is a good opportunity to review your financial health and make changes in the way you manage your money.
Financial management can significantly impact the quality of our life, but it usually doesn't receive enough of our attention. 56 percent of U.S. adults admit that they don't have a budget, and more than 77 million Americans (one-third) do not pay all of their bills on time, according to the 2012 Financial Literacy Survey produced by the National Foundation for Credit Counseling and the Network Branded Prepaid Cards Association.
The survey also shows that 39 percent of adults carry a credit card balance and 39 percent do not have any non-retirement savings.
"We get so busy with life that we can put finances on auto-pilot and assume that everything is going okay," says Bill Hardekopf, CEO of LowCards.com. "Before you know it, the budget springs a leak and your financial health can get bad in a hurry. The best time to develop a plan for your money is today. The longer you wait, the more money you are going to waste."
Here are financial tips for each stage of your life:
* Pay Yourself First
Teenagers receive money for birthdays, allowance and jobs. At this early age, develop the habit of paying yourself first and put money into a savings or investment account. You can even collect loose change to add to this. Over time, small sums grow with interest.
* Make a Budget
Budgeting is important even for teenagers. If you don't keep track of your spending, you will not understand where your money goes. Keep a list of every expense, no matter how small. This will make you think twice about the importance of each purchase.
Twenty percent of Gen Y-ers have more than a $10,000 balance on their credit cards and just 58% pay their bills on time (includes all bills), according to a recent Pew Research Center study.
"Smartphone payments will make it even easier to run up credit card debt," says Hardekopf. "Mobile payments make it too easy to pay without thought or pain. Budgeting and tracking spending is vital as smartphones become the primary source of payment."
* Save Money
If you are single or married without kids, this is the least expensive time of your life. You finally have control of your own money, and it may even feel like a lot of money, but you have to be smart with how you use it. You can spend it all on clothes, cars, furniture and entertainment, or you can spend wisely and save for the future. You may have just graduated from school, but this is best time to plan for retirement.
Maximize your retirement accounts because even though the stock market is volatile, time and compounding growth are on your side.
* Pay down your debt
If you went to college, you may be starting out with large student loan debt. Forty percent of the people under 30 have outstanding student loans, and the average outstanding debt is $23,300. About 10 percent of borrowers owe more than $54,000 and three percent owe more than $100,000, according to the New York Times. On top of that, you may also have credit card debt. This can be
overwhelming and you must develop a plan to pay it off. Start with the debt with the highest interest rate and pay as much as you can above the minimum payment. If you get extra money as a gift, bonus or tax refund, use this as an extra payment on your debt. Take your lunch to work and clip coupons and use the money you save to immediately make micropayments on your debt.
* Build up Your Credit Score
Test scores are behind you, and now is the time to focus on your credit score. This score is more important than any exam because it is how lenders judge you. Your credit score affects the terms and interest rates for all loans--credit card, mortgage and auto. The higher your credit score, the lower your interest rates, resulting in more money you can keep. Your payment history and how you
handle money is so important that employers may even look at your credit report during the interview process to help screen applicants who may be unreliable or a risk of theft.
* Full Disclosure of Debt, Credit Scores and Financial Obligations
Tell your partner before the wedding about all of your debt. Make a list of all student loans, car loans, credit card debt, even loans to friends and parents. Get copies of credit reports to verify all open accounts. One or both of you may enter the partnership with debt payments that will drain away money you could be saving to help you reach financial goals. If either partner has a low credit score,
your rental or mortgage application may be denied, or you may have to pay more money on loans with higher rates.
* Joint or Individual Bank Accounts
Will you have one bank account for all income and expenses, or will you start with three accounts--yours, mine, and ours? A joint account is easier to manage and will prevent some disagreements over dividing bills, but decisions need to be shared. It gives each partner some control over their own spending. Couples tend to gravitate toward joint accounts once they add children and major expenses. If you choose to have separate accounts, develop a plan outlining which account pays each bill before the first bills arrive.
* Save for College
The best time to begin saving for college is the day you bring the baby home. There are college savings plans with tax benefits. Look at state-sponsored 529-plans and educational savings accounts.
* Inheritance and Windfalls
You may receive money from a home sale, inheritance, or insurance payment. This is a great chance to pay off high interest debt, like credit cards or auto loans. It is also a good time to fully fund an emergency fund (six months of household income), and put more money into your retirement account.
* Teach Children About Finances
You can set a good example for your kids of saving, spending wisely and charitable giving. It is easier for them to understand when they watch you do it. Take them shopping with you and show them how to compare prices and find good deals. Let them see you put something back because it costs too much. Open a bank account for them and let them make deposits into their own account. Show them the interest and balance growing on their monthly statement. Give them an allowance and let them make their own decisions about this money. Let them save
and pay for the toys and games they really want. This also gives them a chance to make mistakes with money and experience the emotions and understanding that once money is spent, it is gone.
PREPARING FOR RETIREMENT
* Max Out Your Retirement Savings
You may still be paying for your children's college education, but it is just as important that you save all you can for your retirement. If you retire at 65, will your retirement savings sustain you for 20 years or more? It is a good idea to save 10 to 20 percent of your annual income for retirement. Max out your employer's retirement plans and your Individual Retirement Accounts (IRAs).
* Pay off Your Debt
It is easier to pay off credit card and other debt now while you have income. The New York Federal Reserve says two million seniors in the U.S. who are age 60 and over still have their own student loan debt. Start with the card with the highest interest rate and pay as much as you can above the minimum balance. You can even skip dinner at a restaurant and immediately log in to your account to apply that money to your credit card.
* Have a Plan to Make Your Savings Last
Today, seniors have a longer life and their retirement savings has to last longer. This may difficult if your investments are still recovering from the recent financial turmoil. Developing a plan and a budget may require the help of a financial advisor. The FDIC provides some good information on how to help your money last after your last paycheck.
LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete CreditCard Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for over 1000 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for twelve years.