Last Updated on August 17, 2020
Every year, August 14th is celebrated as National Financial Awareness Day. This holiday is all about making yourself and everyone around you more aware of the financial tips and tricks that can lead you down a path of wellbeing, independence, and prosperity.
The financial world is always changing, so it’s important to stay up to date with the latest financial news and adapt accordingly. If you’ve set your finances to autopilot recently, it may be time to brush up on your knowledge and become more aware of what habits you could be doing to affect your situation.
Here are four tips to help you celebrate National Financial Awareness Day and take concrete steps to better manage your money.
Review Your Financial Situation
One of the most important skills that you should have, or try to learn, is how to organize your finances and undergo periodic financial reviews. It’s likely that you have money spread out between checking and savings accounts, retirement plans, and/or investment portfolios. The only way that you can make informed decisions about how to properly manage your finances is by being aware of their status in the first place.
Start by trying to gain a broad understanding of your current financial situation.
- How much money do you have in each account?
- Are certain investments under-performing or over-performing?
- If you are in debt, what’s the outstanding balance?
Once you ask yourself these questions and find the answers, you may discover that you have more or less money to work with than you previously thought. Perhaps you should be taking advantage of better investment opportunities. Or maybe you need to move some funds around and cut back.
You could also find that you’re essentially throwing money away on unnecessary expenditures and hidden banking fees. You can then reorganize your money and make your finances work for you.
Become Aware of Your Credit Score
Credit scores are always fluctuating based on factors like your payment history and debt-to-credit ratio. If it’s been several months or even more than a year since you’ve last checked your credit report, you should review an updated report.
Making routine credit checks helps you to identify trends in your score over time, as well as notice the impact of certain events, like opening a credit card or applying for a loan.
You may also become aware of mistakes or inaccuracies in your report. If you are able to identify and then correct them, you could see a boost to your score. And don’t worry about checking your score too often, doing it yourself is considered a “soft inquiry” and has no negative impact on your score.
Once you’ve determined what your credit score is and gain a better understanding of where you stand, there’s a lot of decisions you can make going forward.
If you have a good credit score, you may be able to refinance some of your loans and get a much better interest rate. This move can save you hundreds, if not thousands, in the long-run of your payment plan.
On the other hand, if you have a poor credit score, you may want to start taking steps towards building a good credit score. The most important step is to make all of your payments on time and pay off debts to the best of your ability.
Once you’ve gained a better insight into your credit score, you need to take a hard look at your credit cards. Credit cards with high fees may be making your financial situation worse – and a bad credit score can prevent you from opening new accounts. If this is the case, you may want to look into second chance banking as an option. These types of accounts allow you to sign up without a credit check, reducing your worry about a poor credit score, and help you build positive financial habits.
Start Financing an Emergency Fund
Now that you’ve taken a good look at your current financial situation, it’s important that you plan for future financial wellbeing.
One tried-and-true way to provide yourself with a financial safety net is by starting an emergency fund. However, a report by the Federal Reserve shows that a large number of Americans don’t have a plan for emergency expenses and that many wouldn’t be able to pay for these costs out of pocket. According to their survey, roughly half of Americans have a rainy day savings fund that can cover three month’s worth of expenses. Even more worrisome is that nearly 4 in 10 Americans wouldn’t be able to cover an unexpected expense of $400 with cash or savings.
Luckily, starting an emergency fund is easy because you can add funds at whatever pace works best for your budget. Here is a step-by-step plan that will help you start financing an emergency fund:
1. Determine your contribution.
Take a look at your budget and determine what is a realistic amount that you can set aside. Ideally, you should start a habit of contributing the same amount on a monthly basis. You don’t need to completely cut back on your budget, but you may need to be willing to make some sacrifices to hit your goals.
2. Keep the money in a separate account.
In order to properly track your progress and monitor the total amount of money in your emergency fund, you need to keep it separated from the rest of your finances. Opt for a savings account with a higher interest rate to maximize your return.
3. Set milestones.
Building an emergency fund is a marathon, not a sprint. You should always be trying to better your financial wellbeing. Setting milestones along the way can help you feel accomplished as you meet your goals.
First, try to focus on building an emergency fund to cover one unexpected expense—$1000 is a good starting point. Then, try to build out your budget to cover several month’s worth of living expenses, in case you were to lose your job. Start with one month, then two, then three, and so on.
4. Establish ground rules.
You need to decide what constitutes an emergency expense, and therefore when you are able to pull funds from your account. Common emergencies include car repair, unexpected medical bills, etc. It’s totally up to you to decide when and how to use your money. Just keep in mind that an emergency fund should only be used for true emergencies.
5. Be flexible.
Yes, you should try to contribute the same amount on a monthly basis—but if you cannot, that’s alright! Other expenses like bills, gas, and groceries always come first. So if you are falling behind, you can always contribute less to your emergency fund.
On the other hand, if you find some extra room in your budget, try to contribute even more. You’re better off putting that money to use rather than spending it on wants instead of needs. Whatever you do, just don’t lose sight of what is important—staying aware of your financial wellbeing.
Spread Financial Awareness to Others!
While it’s certainly important to take stock of your personal finances and try to learn new methods of improvement, financial awareness is also about helping others! You don’t have to get into the details of other people’s spending habits and financial portfolios, but you can always offer some valuable information that you’ve learned.
Maybe you came across an insightful article (like this one!) that is full of good information? Share it with friends and family! Or perhaps you have a financial advisor that you really like. Introducing them to somebody you know may be the key to improving their own financial wellbeing in the long-haul.
And if you have children of your own, it’s never a bad time to start teaching them about finances as well. With small elementary-aged children, you can start by teaching them the value of money and the responsibility that comes with cash. Doing chores for a small allowance every week is a valuable task to learn these skills. If your kids are older, you can start teaching them more complex skills like budgeting and saving. You can even help them open their first credit or debit card.
Financial awareness is all about becoming more knowledgeable on financial strategies and values that can lead you down a road to success. No matter your stage in life or financial situation, there’s always something new to learn and apply.
Celebrate National Financial Awareness Day by expanding your horizons and developing a new financial mindset.
YOUR TURN: How are you celebrating National Financial Awareness Day? Leave a comment below and let us know!
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