Research shows that having knowledge about financial issues helps people make better decisions with their money. This may lead to lower debt accumulation and more savings in the bank.
As we continue to experience an economic downturn and high rates of inflation, now is the perfect opportunity to get educated on money matters. This may include knowing how credit works, how to create and use a budget, and how to save for the future, among other skills.
The Financial Literacy and Education Commission identifies five key financial principles. to keep in mind that may help you improve your financial health: earn, protect, spend, borrow and save.
Here's information to keep in mind around those five principles.
Review your earnings and understand your
It's a good idea to better understand how much you make, how much you pay in taxes out of those earnings and how much you pay toward benefits like health insurance or your company-sponsored retirement account. If you contribute to benefits, some of those costs will be taken out of your paycheck before you are taxed. This lowers the amount you pay in taxes.
If your employer does not offer a retirement plan, WaFd Bank offers two types of Individual Retirement Accounts (IRAs) – traditional and Roth.
Take care of your investments and make sure you have an emergency savings account.
It is important to protect your investments by purchasing insurance since unexpected events like medical issues, auto accidents or damages to your home or rental property can lead to unforeseen costs that may break the bank.
In addition to purchasing health, auto and home or rental insurance, consider stocking away money in an emergency fund. Experts recommend having enough money available to cover three to six months of living expenses for those just-in-case moments.
Shop smart and build a budget.
Make sure to shop around to find the best deals on items. Give yourself at least a day before making any large purchases. This gives you time to make sure you are not just making an impulse buy. Consider creating a budget to help you better see where your money goes. WaFd Bank offers a free online app-based budgeting tool where you can create and track your spending.
Build your credit, but watch out for high interest rates.
It's important to build a strong credit history so you have a high credit score. The higher credit score you receive, the easier it may be for you to qualify for a loan or credit product. One way to build your credit history is to have a credit card and use it responsibly. Make sure to not spend too much money using the credit card and to make payments on time (consider an auto-pay option). If possible, try to pay off your credit card bill each month to avoid paying interest. WaFd Bank offers credit cards with competitive rates, no annual fees and great rewards.
Save now, spend later.
Set a goal to save money in a savings account, retirement account or both. Set small goals like saving an extra $25 or $50 each month. As you plan your budget, see if you can increase your contributions.
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