“I wish I had this when I was younger…”
That’s the one statement we always hear repeatedly from adults we meet when discussing Mrs. Honey’s ABCs of Money at book festivals, book stores, and schools.
It hits home because we feel the same way. We wished we began our financial literacy journey at a much younger age.
So, we’re offering you Five Essential Financial Literacy Tips we wish we were taught when we were younger!
Share with your young ones today!
#1 Create a Budget
This one’s crucial, especially if you hope to retire early.
Start off by calculating all of your monthly income and expenses, down to the last nickel and dime!
Record everything you make and spend on a spreadsheet or on one of several widely available, and free phone apps or websites.
Use all of this information to create a budget that works for you. After all essential bills are paid (such as rent, mortgage, utilities, car payments and credit card bills) how much is left for other non-essential expenses? What’s the max you should spend on dining out? Or entertainment?
The rule of thumb we like to follow (and remember, it’s a rule of thumb, meaning you tweak it to fit your unique circumstance) is that you should be spending no more than ⅓ of your income on housing (that would be mortgage or rent). You should be saving and investing 20% of your income. 20% goes to other essential expenses, such as your utilities, food, car insurance and car note, transportation costs, etc. The 25-50% remaining is for your discretionary spending – nice to haves but not essential (such as your streaming services, going out to eat, your Starbucks or Dunkin fix, buying clothes, etc.). If your housing takes up more than ⅓ of your income, then you’ll need to reduce the discretionary spending.
#2 Track your Spending
Track-track-track every dollar you spend to help you stick to your budget.
Yes, we know this sounds tedious, but hear me out…
Much like tip #1, make sure to record all of your expenses so you remain aware of what you’re spending at all times. Treat your expenses as a business would treat their expenses – businesses are hyper aware of how much money they are spending compared to how much money they bring in!
That means you follow everything from bills to that bag of plantain chips you purchased from the vending machine at work.
That also means you should check your bank and credit card accounts often. We really like setting those automated alerts on all accounts so we receive notifications when cards are used.
Track your money, track-track-track. Tracking’s cool and that’s a fact!
#3 Smart Debt (not all Debt is bad)
This is something we didn’t realize until we were adults.
In our twenties, you couldn’t convince us debt wasn’t anything but a stress-inducing nightmare.
But not all debt is bad. Some debt is necessary to build your credit, which will help you acquire assets.
We’re not saying you should accrue massive amounts of debt that you cannot handle.
If you do take on debt, be aware of interest rates, repayment schedule and amount, and make sure payments fit into your budget.
#4 Save for Emergencies
The one guarantee in life is that there are no guarantees in life. 🙁
Bad things happen when we least expect it.
People lose their livelihoods. People lose their homes due to floods, fires, foreclosure, or other unforeseen circumstances. People fall ill unexpectedly.
This is why it’s important to create a financial cushion to catch you if you suffer any misfortunes.
Our recommendation: have six months of savings to cover your living expenses. For example, if you spend roughly $4,000 a month, have $24,000 in savings.
So, set aside some money each month in case of emergencies.
#5 Invest for the Future
This could mean a lot of things.
We mean start investing for retirement as early as possible to give your money time to grow. There are numerous ways to invest, and this can be through your employee sponsored plan or on your own via Roth account. Once you have your retirement savings game plan solidified, you can start exploring investing in other assets, such as real estate.
But this can also mean investing in your health through diet, exercise, getting enough sleep, and limiting drugs and alcohol, as much and as early as possible to avoid preventable medical issues which can lead to medical expenses.
This can also mean investing money and time in your education (college or trade school) so you’re more likely to receive high wages.
This can mean investing time in your network (family, friends, associates, etc.), because your network likely leads to a greater net-worth.
Any or all of these investments can lead to great things in your future.
So invest, invest, invest and be your best!
Conclusion
It took years for us to discover our financial literacy superpower, which is why it’s important you share this list with the young ones in your life!
Help them discover theirs early!