7 Ways to Increase Your Financial Literacy in 2024
Research shows that having knowledge about financial issues helps people make better decisions with their money. This can lead to lower debt and more savings in the bank. This includes knowing how credit works, how to create and use a budget, and how to save for the future, among other skills. Wherever you are in your financial journey, we've got a few important things to keep in mind as you look toward the future.
- Understand the Basics
When building your financial knowledge, the main things to start with are how to budget and the importance of saving and debt management. It doesn't matter how young or old you are; you'll want to keep an eye on where your money is going and how it's working for you. - Simple Money Management Tips: How to Manage Money Wisely
Consider creating a budget to help you see where your money goes or utilize your banking app to track your spending. You might have more subscription services than you think, or buying small things like coffee or lunch here and there added up to much more than your original maximum budget. Set a goal to save money in a savings account, retirement account, or both. Set small goals like saving $25 or $50 each month. As you plan your budget, see if you can increase your contributions. You can also use comparison shopping to help you save money as you buy groceries and other items. While that means doing a little math from time to time, the dollars you save add up to big bucks over time. - How Should a Beginner Start a Budget
Start at the beginning—with your bills. Don't stop at big-ticket ones like your rent/mortgage payment and utilities. Make sure you go through the transactions in all your accounts to catch things like subscription services you might have forgotten about. Next, add up how much you usually spend on expenses like groceries and gas that you don't necessarily always spend the same amount of money on. You don't have to be exact, but get as close as possible. Then, you can decide how much you want to spend on activities like eating out, bowling, general entertainment, and shopping. After that, look at what you have left over and set aside something for your savings account each month. Even $10 a month adds up over time! - Build Your Credit Score
It's essential to build a strong credit history so you can have a high credit score. The higher your credit score, the easier it can be for you to qualify for a loan, credit card, mortgage, and more. One way to build your credit history is to have a credit card and use it responsibly. Try to pay off your credit card every month to avoid paying interest and see if you can find one with perks and benefits you'll use (WaFd Bank offers a credit card with cash back). This way, you'll build your credit history and score and earn rewards, cash back, and other benefits depending on the card you choose. Your score is calculated based on a few factors, which are listed below, but the main thing you can do to build your score is make your payments on time every month and do your best to keep the balance as low as possible.- 35%: Payment History: This includes how timely you make your debt payments (if they're late or on time) and any delinquencies and public records. Payment history is a big one; paying your bills on time can do more to raise your credit score than anything else.
- 30%: Amounts Owed: This includes the amount you owe on all your loans, including your mortgage, car, student loans, and credit cards. The percentage of available credit you use on revolving accounts, like a credit card, is heavily weighted. You want to spend at most 30% of your total credit limit but don't worry too much if you go over this limit for a short time. For example, if you're only using $300 of your available $3,000 credit card limit, that will reflect more positively than if you maintained a consistent $2,800 balance on that same credit card.
- 15%: Length of Credit History: This refers to how long ago you opened the accounts and the time since your account activity. The longer your account is open, the more you'll go up in this category.
- 10%: Types of Credit Used: This includes the mix of your credit accounts. To get a perfect score, you'll need various types of credit, such as home, auto, student loans, or credit cards. Remember, this is the lowest-scoring criterion, so if you don't have a home, auto, student loan, etc., it's not worth rushing out and getting one just for your credit score. As a general rule of thumb, you should only borrow if necessary.
- 10%: New Credit: This category can be confusing. Essentially, new credit includes how often you get new loans or revolving credit (including credit cards and lines of credit), credit inquiries, and the number of recently opened accounts. In calculating this piece, FICO looks at, among other things, loan applications, and new debts that were added to a credit report in the last six to 12 months. Suppose you have a lot of new credit established recently. In that case, you're generally viewed as "riskier" because you have not yet established a history showing you can afford new payments.
- Review Your Income and Understand Your Benefits
It's a good idea to better understand how much you make, how much in taxes comes out of your paycheck each pay period, and how much you pay toward benefits like health insurance or your retirement account. If you pay for some or all of your benefits like health insurance, some of those costs will be taken out of your paycheck before you're taxed. This lowers the amount you pay in taxes, which means you'll keep more of your paycheck. This includes things like a health savings account or flexible spending account, some types of retirement contributions, and others. Knowing these numbers will help you understand how much you pay in taxes and how you can lower your taxable income to keep more of your paycheck. It may be confusing, but be sure to understand what is covered in the benefit plan you choose, so you don't have to pay out of pocket for services that are necessary to you, such as counseling sessions or regular doctor appointments. For example, some plans will only cover a set number of appointments, so if you need to see the doctor more often, you can at least be prepared to pay for those visits out of pocket rather than being surprised. - Future Planning
While insurance might seem unnecessary to some, it's one of those things that isn't important until it is, like when you have a medical event or are in a car accident. Other than health insurance, look into short-term and long-term disability insurance, renter's insurance, and car insurance to see if you would be covered if something happened. This way, you're protected if something unexpected happens, and you can keep your savings in the bank. In addition to purchasing health, auto, and home or rental insurance, seriously consider saving regularly to build your emergency fund. Emergencies are rarely convenient, so it's best to be prepared. Experts recommend having enough money to cover three to six months of living expenses for those just-in-case moments. Lastly, consider your retirement accounts. It's never too early to start saving! If your employer doesn't offer a retirement plan, WaFd Bank offers two types of Individual Retirement Accounts (IRAs), traditional and Roth, to help you get started and save for your retirement. - Stay Informed
If you're not learning, it's challenging to grow your knowledge. Try to find new resources to better understand different financial topics, like retirement and investing, which will naturally reveal new resources to learn from and use. This can help you improve your financial situation to dream big and meet your financial goals!
WaFd Bank is Here to Help
No question is too small for our friendly bankers! With WaFd, your checking and savings accounts give you access to the tools and services you need and expect to help you manage your finances and get the most from your money. Open an account online, visit us at your neighborhood branch, or give us a call at 800-324-9375 today!