Did you know that April is Financial Literacy month? Having a good understanding of financial literacy is like having a compass for navigating your path toward financial freedom. For many of us, the idea of managing finances can be a daunting challenge. However, by focusing on key areas—such as building an emergency fund, paying off debt, saving for retirement, and planning for college—you can set yourself and your loved ones on the path toward long-term financial well-being.
1. Building an Emergency Fund
An emergency fund acts as your financial shield during unexpected events, such as medical emergencies or job loss. Strive to save three to six months of essential living expenses in a liquid, accessible account.
2. Paying Off Debt
Debt can impede your financial freedom if not properly managed. Start by listing all your debts with their balances and interest rates. Choose a repayment method that works best for you:
- The debt snowball method, which prioritizes smaller debts for psychological wins.
- The debt avalanche method, which focuses on paying off high-interest debts first to save money over time.
Whichever strategy you pick, maintain consistency, and avoid accruing new debt.
3. Saving for Retirement
Starting early can make a huge difference (check out our retirement savings calculator for examples), but if you didn’t start early, the next best time to start is now! Maximize contributions to employer-sponsored plans, like a 401(k), especially if there’s a matching program—it’s essentially free money! If you don’t have access to a plan through work, there are plenty of other tax-qualified plans, such as an IRA or Roth that you could consider. Time is your ally; the sooner you start, the more you can benefit from compound growth.
4. Saving for College
If you’re planning to support a child’s higher education, there are some great tax-advantaged ways to save towards those goals. 529 college savings plans allow your investments to grow tax-free if used for qualified education expenses. If you are in Iowa, you can also receive a state tax deduction for money contributed to the Iowa 529 Plan.
5. Legacy and Gifting
If you’ve made it through the first four steps you are doing great, and well on your way to financial freedom. Now you can dream big and start to think about your bigger-picture goals. Retire early? Buy a vacation home? Support a charity? Leave a legacy for future generations? Much like the earlier financial goals, having a clear target and a disciplined process can help you to make these dreams a reality.
Final Thoughts
Financial literacy empowers you to take control of your financial destiny. By taking a disciplined approach in these key areas, you can create a secure and prosperous future for yourself and your family. The journey to financial wellness begins with a single step. Give us a call today, and we can help to customize a plan for your specific financial goals!