Financial Literacy: Essential Tips for Financial Well-Being

• The first step in establishing your financial well-being is understanding your spending habits so you can write a realistic budget.
• Another way to achieve financial stability is to save enough money for an emergency fund. 
• You’ll also want to educate yourself about debt products, like credit cards and auto loans, so you can make a plan for paying them off efficiently.
• Financial well-being extends to your future as well. Take the time to learn how to invest in your future with tax-advantaged retirement accounts. 
• If you need help with financial literacy concepts, you can contact a KOFE financial counselor for free as a Payactiv member.

The confidence that comes with knowing your finances are stable is undeniable, but ensuring your financial health can take time and work. Improving your financial literacy is a critical part of this process.

Here are some of the most important money-related topics you should understand to safeguard your financial well-being.

Figure Out Where Your Money Is Going

One of the first steps to financial literacy is understanding your spending habits. You might be ultra-responsible and only spend on the things you need. Or, if you’re like most people, you probably have some budget leaks you’re overlooking.

Tracking your purchases in the Payactiv app can help you see where your money goes and decide if you’re happy with your spending habits. If you’re not, you can adjust your budget.

Write a Realistic Budget

Once you know where you stand today, you can plan for your future spending. This process is known as budgeting. First, you’ll record all your necessary expenses, such as rent, utility bills, and money for groceries.

If possible, the next step is to set some money aside for savings. Then, you can allocate whatever money you have left to your wants. These can be splurges like your Netflix subscription, trips to coffee shops, or concert tickets.

It’s essential to write a realistic budget. While you might know it’s not ideal to spend money on lattes, only cut them out of your budget if you have the self-discipline to stop buying them. Otherwise, you’ll experience a disconnect between your money plans and reality.

Build an Emergency Fund

An emergency fund is a significant step in establishing financial stability. You can use this money to cover unexpected expenses like medical bills, recovery after a natural disaster, or even your bills after a job loss.

It’s possible to start with a goal as small as $1,000, but saving three to six months’ worth of expenses is best. This money will give you peace of mind when you inevitably hit bumps in the road since it will prevent emergencies from derailing your financial progress.

Pay Off Debt

Paying off debt can positively benefit your finances because it saves you money on interest. Interest rates and term lengths are the biggest things to be aware of when dealing with debt.

Some credit products, like credit cards, have high interest rates with no term lengths. This means you keep paying and incurring interest until you’ve paid off the entire debt. Keep in mind that paying off your credit card in full each month will save you money on interest.

Other products, like auto loans, have terms that specify when you must pay the loan back. These loans also charge interest, so you’ll want the lowest rate possible to minimize how much you need to repay.

You might receive a lower interest rate offer on a longer term, but be careful if this happens. When you spread payments out over a longer period, you might pay more over time, even if the interest rate is lower.

Invest for Your Future

Financial literacy is about more than just taking care of yourself today. It’s also about taking care of yourself in the future. One of the best ways to do this is by investing in a tax-advantaged retirement account.

Your employer may offer one of these accounts as part of your benefits package, often as a 401(k). If they don’t, you can open another tax-advantaged account, like an IRA.

Final Word

Improving your financial literacy is essential to ensuring your financial well-being. If you need help getting started, contact a KOFE financial counselor. This service is free to Payactiv members, so make sure to take advantage of this perk to get your finances on the right track.

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