Is the world of finance complex? Yes. Can it be frustrating to try and navigate? Absolutely. So while it’s always a good idea to have a trusted advisor explain the fine print, there’s no reason you can’t brush up on the basics and boost your confidence. After all, knowledge is power, so let’s get empowered.
Key Components: Budgeting – Saving – Credit – Investing
Some of you may already have a good understanding of these topics, but, according to several surveys, most Americans are lacking in financial literacy. Starting with the basics gives you a solid foundation for delving into more intricate subjects.
Common Rules For Budgeting
Have you ever heard of the 50-30-20 method? A common guideline for creating a household budget, it suggests allocating 50% of your take-home pay for needs (housing and groceries), 30% for wants, and 20% for savings. In the zero-based method, all expenses and savings are deducted from your take-home pay until the remainder is zero. If you’re in an area where your housing and essentials require more or less than half of your paycheck, this method helps ensure that every dollar is still purposefully distributed.
Save Early And Save Consistently
Many financial experts agree that by the time you turn 30, you should have saved a year’s worth of your salary. That figure rises to 6x your salary when you hit 50. It can seem like a daunting goal to reach, but any amount of savings is a step in the right direction. A good start is an emergency fund, usually 3 – 6 months of your salary. This can protect you from having to make unexpected withdrawals from your retirement account that could result in penalties.
“Many financial experts agree that by the time you turn 30, you should have saved a year’s worth of your salary.”
Building And Maintaining Good Credit
Your credit score has a massive impact on your ability to borrow and how much it will cost you to borrow. Make sure you maintain a good payment history on your credit cards and try to keep the balance on those cards within 30% of your credit limit. Be aware of the interest rates on your cards and how that interest compounds. If you must carry a balance, do so on the card with the lowest interest rate.
Make The Most Of Your Investment Options
Take advantage of the agency match on your TSP. According to tsp.gov, as long as you are contributing at least 5% of your bi-weekly gross pay each pay period, you will receive the 4% Agency Matching contributions each pay period. Additionally, you will receive the Agency Automatic 1% contribution each pay period.
The bottom line, tracking your spending can potentially allow you to keep more of your money and channel it toward paying off debt and planning for retirement. Turning to an FRC® trained advisor can help verify that you’re taking the right steps to ensure a bright future.
