HAPPY FINANCIAL AWARENESS DAY
We all know that managing our finances is really important! But what exactly does that mean? Well, in honor of National Financial Awareness day I’m here to shed some light on this oh-so-important topic.
There are statistics everywhere saying that a majority of Americans are bad at managing finances, regardless of their tax bracket. Emergency funds are frequently nonexistent. The reality is if you make $200,000 a year, but spend $220,000, it will be hard to pay for any sort of emergency or other obligations that will inevitably come up in life. That is the truth regardless of how much income you make. We call this living “paycheck to paycheck” or “living above your means.” That means taking on debt to pay for expenses which only puts individuals even further in the proverbial hole.
Since money affects almost every aspect of our lives, it is important to explore your relationship with money to build a plan that will allow you to achieve your goals now, and into the future.
So, where should you start?
First, identify how much income you have coming into your household. If married, this means both you and your spouse. Review your paystubs (if you are a W2 employee) to get an understanding of gross pay versus net pay. Typically, federal, state (where applicable), and social security and medicare taxes (FICA) are taken from gross pay. If you save for retirement in a company plan like a 401k, 403b, etc., it will show whether it is pre-tax or Roth on your paystub as well. Once all of those items are taken out of gross pay, you get net pay which is what you have to work with to pay bills and live your life.
Second, identify your fixed expenses vs. your variable ones. Fixed expenses are things like rent or mortgage payments, insurance payments, car notes, and other debts that have to be paid each month but don’t fluctuate.
For variable expenses, I like looking at it in two categories: needs and wants. A variable expense that is a need would be groceries. Your grocery spending will generally fluctuate each month so it is variable, but you have to buy it to live so it is a need, not a want, and should be budgeted for. The want category for variable spending is things like shopping for clothes, eating out, going to the movies, or vacations, and hobbies. These are things you will generally do each month but is a want that can be easily scaled up or down in terms of how much is spent on it each month.
Third, decide how to track expenses. There are several ways to figure out your spending and then differentiate between fixed and variable expenses. There is the old school route of writing everything down on paper or using an excel sheet for several months to document spending. Another easy way is to look at your bank and card statements to see exactly where your money went for the previous 3-6 months. This will give a rough idea of what is fixed, what is variable, and what is a need vs. a want. The new school way of tracking expenses is by using websites like Mint.com or budgettracker.com to link up all of your bank accounts and cards and let the software do the hard part. For our clients, they can utilize WealthVision – powered through eMoney, to link up their financial accounts and track spending.
Regardless of how you decide to track your expenses, remember it is important to provide a connection with the hard-earned money that you make and spend each month. You will see exactly where the funds are going and can utilize this information to create a reasonable household budget.
Why go through all of this you ask? So that you can improve your financial standing, provide financial confidence, and be able to start making your money work for you.
- 58% – the percentage of Americans who have less than $1,000 saved.
- 8% – the percentage of U.S. citizens who believe they will never recover from the recession.
- $2,000 – the average emergency savings millennial Americans have.
- 20% – the percentage of Americans who don’t save any of their annual income.
- 50% – the percentage of American households who live paycheck to paycheck.
- 32% – the percentage of U.S. families who maintain a household budget.
- $1 trillion – the total credit card debt held by Americans.
- 44% – the percentage of Americans who don’t have enough cash to cover a $400 emergency.
- 24% – the percentage of millennials who demonstrate basic financial literacy.
- 40% – the percentage of student loan borrowers who aren’t making payments.
- 68 Cents – the amount saved by women in 2020 against a dollar saved by men, a decrease from 70 cents in 2019, according to a report by LT Trust.
Use this National Financial Awareness Day as a springboard to begin your journey of taking control of your finances, and your future.
Thanks for checking out the blog.
Navarone Simpson , CFP®