Financial literacy is an important, but often undervalued, aspect of life. Being financially literate means knowing how to manage your money so that you can achieve your financial goals. This includes knowing how to pay bills, responsibly borrow money, save money, invest, and how to plan for retirement. It’s never too early or too late to focus on your financial literacy.
As a private financial advisor, Stephanie Cox Hulsey is familiar with how to effectively manage both personal and business finances. Based out of Knoxville, Tennessee, Stephanie has always been attracted to the world of finance and wealth management. She shares her guide to financial literacy.
Banking
Setting up a bank account is the first step in your journey to financial literacy. A bank account is a simple, yet very important aspect of your finances. It allows you to save money safely and opens up other financial doors like the ability to get a credit card and receive automatic payments from employers. Some bank accounts even allow you to earn interest on the money in your account, helping you grow your savings. As simple as a bank account may seem, there is still a lot to know. For example, which type of account to open, the advantages and disadvantages of each, etc. According to Stephanie Cox Hulsey, there are three main types of accounts that most Americans will come across.
A savings account lets you put away money and pays interest on the money you have saved. While the interest you’ll be earning is small, it’s still better than what you would be getting by putting your money under your mattress. There are, however, limitations on most savings accounts. For example, only a limited number of transactions per month are allowed.
Checking accounts are also common. Much like a savings account, money can be deposited and withdrawn from a checking account on a regular basis. In contrast to a savings account, checking accounts offer very little to no interest, although they do offer more transactions each month.
A high-yield savings account is another option. This type of account is similar to a regular savings account but offers a much higher interest rate. The downside? High-interest accounts require larger initial deposits, a higher minimum balance, and charge more fees.
Credit
A credit card is also a type of account — an account that lets you borrow money. It’s important to understand; however, that this money doesn’t come without a cost. Each month, if you don’t pay back your credit card issuer in full, you’ll owe the amount you borrowed plus interest. Be sure that you familiarize yourself with the annual percentage rate (APR) that your credit card issuer will charge for outstanding debt. This interest can add up quickly, especially with a high APR.
A credit card can be a very helpful tool that you can use to help build credit, but it’s important that you use your credit card wisely. Failure to do so can result in a low credit score that may haunt you throughout your life. Stephanie Cox Hulsey emphasizes the importance of avoiding missed payments and paying off your credit card debt each month, so you don’t incur interest costs.
Credit Score
Not everyone is familiar with their credit score. However, this is a very important part of personal finance. Your credit score will determine whether lenders will give you a loan, how much they’ll offer, and at what interest rate. Essentially, your credit score indicates your financial well-being by looking at factors related to your sending habits, including how often you borrow money and how quickly you repay it. These factors result in a score that ranges from 300 to 850, with 300 meaning you are high risk and 850 signifying low risk. A high credit score can help you get a loan, credit cards, a mortgage, and even with renting a new apartment or getting a new job. Stephanie Cox Hulsey suggests focusing on building a strong credit score by making sure you pay your bills on time, never missing a payment, and responsibly taking on debt so as not to drown yourself in it.
Budgeting
Another fundamental aspect of financial literacy is budgeting. By analyzing the money you have coming in and determining exactly where that money is going, you can learn to control spending and to save. While it may seem simple, creating and sticking to a budget isn’t always easy to do. It takes planning and a lot of dedication. Stephanie Cox Hulsey suggests taking a look at what you’re spending and where you can make changes. Following your budget and contributing even a small amount to savings can help you significantly in the future.
Saving
Saving money is a very important skill and aspect of financial success. With money in savings, you can ensure you’ll be able to cover unexpected costs and even make larger purchases without having to borrow. Most importantly, having savings will help you avoid debt. Effectively saving money relies on good budgeting to ensure that you have money left over each week, or month, to set aside. One of the best ways to start saving, Stephanie Cox Hulsey says, is to have money automatically taken out of your account each month and put into a savings account. Start small — any little bit will help. Eventually, if you’re sticking to your budget, this amount will grow, resulting in a larger sum of money.
Investing
One of the best ways to increase your savings is to invest your money. There are many options for investing, including stocks, bonds, real estate, and more. With the help of a financial advisor, you can make smart investments that will help you grow your savings for use in the future.
Retirement
The sooner you start saving for retirement, the better off you’ll be. By starting to save early on, you allow yourself more time to grow the money you save. When developing a retirement savings plan, consider at what age you hope to stop working (and how many years you have to save), any possible health care costs you’ll face, and the benefits or pension you’ll receive from your employer. As mentioned by Stephanie Cox Hulsey, it’s smart to have automatic transfers put money into a savings account each month. This will help ensure that you are working towards your retirement goal. Using growth accounts, like IRAs and 401(k)s, to help you build your savings is also helpful. If part of your retirement funds are in investments, it’s important to keep in mind that you should decrease your investment risk as you get older.
Stephanie Cox Hulsey on Financial Resources
One of the most important skills when it comes to financial literacy is knowing when to ask for help. The last thing you want to do is bury yourself in debt, but recognizing that there is a problem can often be difficult. However, if you can identify any financial downfall and reach out for help, a financial advisor can help you resolve your issue and get back on track to financial freedom. Learning more about how to manage your finances, whether or not you are currently having financial issues, is always a productive and helpful option.
