Hitting financial speed bumps is inevitable. It may be a parking fine, unexpected car or home repairs, or emergency medical care. No matter the expense, one thing is certain – everyone experiences financial hiccups from time to time. While you know they happen, you may not know when or how expensive these costs will be.
April is Financial Literacy Month, and I’m sharing ways you can become more money savvy and how to create a plan when faced with a personal finance decision.
Financial literacy is key.
Let’s talk about what financial literacy means. Being financially literate means understanding money concepts and having the skills to make personal finance decisions. While you may often hear about it in terms of learning to budget or manage debt, financial literacy is a journey, not a straight path. The key to getting through a financial setback is to learn the skills that are needed to help you plan ahead or get advice when faced with a challenge.
Start with an emergency fund.
Emergency funds are key to ensuring you have the funds on hand to handle any bumps in the road. If you don’t have savings, start with a reasonable goal. For many people this is $500-$1,000. Start with whatever you can spare from your budget and look for ways to add to your emergency fund by selling household items, picking up extra work, or starting a side gig.
Your next goal should be a month’s expenses. Remember this is not your salary, but how much you need to spend each month on fixed and necessary expenses like rent/mortgage, utilities, monthly payments, and expenses like food and gas.
After that, keep setting aside funds until you reach 6 months expenses. It won’t happen overnight, but keep at it!
Remember, if you take money out of your emergency fund, you have to replace it. If you’re not able to replace it immediately keep socking money away until you reach your next goal.
Tip: To help increase your emergency fund savings set aside a percentage of your take home pay each month (ideally 5-10%). To grow it even faster you can add side gig money, bonuses, unexpected checks, and cost of living raises into your emergency fund when you receive them. Check out this calculator from 360finlit.org to help you determine how much emergency savings you may need based on your personal situation.
Talk to family and friends.
Sharing your financial setbacks or challenges can be a great way to connect. Someone you know has likely been through the same thing, like a car accident, or you’re dealing with something challenging that will help your friends and family be more vigilant, like identity theft.
Another way to involve loved ones is to get advice on financial setbacks. It can be extremely helpful to hear other perspectives. While not everyone will have the same advice or experience, it’s helpful to gather information, advice, and learn how others have dealt with similar situations.
These conversations may be uncomfortable at first if you’re not used to discussing financial matters, but try to be open. It can be eye-opening to everyone and lead the way to a more important financial conversations.
Tip: Remember that you’ll get many different opinions, so be sure to weigh all your options when turning into action.
Read, listen, and learn.
There are so many options to learn more about specific financial issues and financial skills. Books, articles, magazines, websites, blogs, nonprofits, podcasts, webinars, videos, and so much more!
Whether you’re looking for advice on a certain time in your life, want to learn more about how markets work from an investment expert, or like your money with a side of comedy, there’s something out there for everyone.
Tip: Be sure to check out 360 Degrees of Financial Literacy, a free program of the nation’s CPAs that helps Americans understand their personal finances through every stage of life. Visit 360finlit.org to find free personal finance resources.
Don’t beat yourself up.
We all make mistakes. We all do stupid things that cost us money. It doesn’t matter if it’s the small things, like forgetting to pay a bill on time, or a giant repair that costs us thousands – we’ve all been there.
Give yourself some time to be frustrated or disappointed for a bit, then tackle the issue head on by making a plan. You’ll feel much better about yourself if you know you have a plan in place.
Tip: If a loved one came to you in the same scenario you’d likely offer them sympathy and suggestions, so be just as gentle on yourself.
Seek professional help when you have questions.
Don’t know what to do and the advice you’re reading or getting from others isn’t helping? Time to turn to a professional. Times you may turn to a professional include: figuring out what kind of investments to focus on, tax issues, what to do with a windfall, or how to develop a long-term plan.
Certified public accountants (CPAs) are a great source of information when you have questions about deductions, tax, or handling complex tax matters. They’re especially great resources for IRS issues, audits, filing taxes, and making estimated payments if you’re a business owner or freelancer.
CPAs are an excellent resource when you feel overwhelmed with financial planning or have specific questions. They can help you create a long-term roadmap for retirement, advise you on investments, and take your dreams and turn them into a financial plan. To find one near you, visit cpasdotax.com.
Ask the Money Doctor
360 Degrees of Financial Literacy offers a number of amazing resources on their site including Ask the Money Doctor! You can ask personal finance questions to a panel of qualified CPAs who will help you find the answers to your financial planning questions – completely free of charge..
Tip: Visit Ask the Money Doctor to see previous questions and submit your own!
Now that you have some tools for handling those financial speed bumps, make a plan on how to handle the road ahead.