This was originally published on Monday, April 3, 2017, in the Pacific Daily News. Click here to subscribe to the PDN.
April is Financial Literacy Month. Since 2003, the United States has recognized the importance of economic and financial education. The mission is to improve lives through financial education. During April, these columns will explore some of the top personal finance problems most face and offer some solutions.
Most of us aren’t strangers to financial issues. We have, at one point in time, felt that our finances could use improvement. Often, financial problems translate into stress, which affects our personal and professional lives. The National Foundation for Credit Counseling reports that 42 percent of Americans graded themselves between a “C” or “D” when it comes to their personal finances.
- No budget. According to a Gallup poll, only 32 percent of Americans keep a household budget and 20 percent don’t have a good idea of how much they spend on housing, transportation, food and other categories.
Having a budget is one of the most successful strategies to being financially healthy. It is also one of the easiest once you get into the routine. Being conscious of how you spend your money can help you understand just where your weaknesses are and then correct them.
A good rule of thumb is the 50/20/30 Rule. This rule stresses that 50 percent of your net income should go to essentials such as rent/mortgage, utilities, transportation and groceries. The next 20 percent should go to financial priorities such as health insurance, an emergency fund, retirement savings and debt repayment. The last 30 percent should go to entertainment and other miscellaneous items that we don’t need but like or want.
Your budget should be based on reality, not guesses. Take a look at your budget and ask yourself: Do I need to eat out this much? Do I need that new pair of jeans? Are there ways that I can cut back on my grocery bill?
- Emergency fund. Uncertainty and the unexpected are the best way to describe the economy today. One of the fundamentals of personal finance is to have an adequate emergency fund. A statistic from Debt.com states that half of the American population has less than one month’s income saved for emergencies.
Determine how much you need by how much you spend monthly. Most experts agree that having any amount in an emergency fund is good, but a great emergency fund will cover three to five months’ worth of expenses.
Your fund should be easily accessible, but not so easy that you are tempted to make non-emergency withdrawals. Your fund doesn’t have to be in one location; you can spread it out — a savings account, a savings bond, a cash lockbox or safe at home.
Make adding to your emergency fund a priority. Consider setting up an automatic transfer that will help build the fund. Decide what you consider an emergency and stick to it. Build your fund realistically, $10 each week will give you $500 in a year.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.