A July 2016 study by the Financial Industry Regulatory Authority (FINRA) shows that 63 percent of Americans are unable to correctly answer more than three of five questions about basic economics and finance. FINRA’s study included more than 25,000 American adults, who represented national population in terms of age, gender, ethnicity and education.
It’s no surprise then that the study also shows that 50 percent of Americans don’t have a “rainy day” fund to cover expenses for three months — in case of emergencies such as sickness, job loss or economic downturn. Those without emergency savings face unexpected financial blows that not only compromise their personal financial stability, but decrease overall economic stability as well.
Set and Follow a Budget that Works for You
An estimation tool you might use is the 50/30/20 rule. That ratio breaks down like this:
- 50 percent of net income: Spend about 50 percent of your take-home pay on “fixed costs” — bills that are about the same amount each month. This might include things such as rent/mortgage, car payments, utilities, cell phone service and memberships or subscriptions (Netflix, gym, Spotify).
- 30 percent of net income: In the 50/30/20 plan, about 30 percent of your net pay would go toward flexible spending — also commonly called disposable income or lifestyle expenses. These might include costs for hobbies, shopping and entertainment. We will include gas and groceries in this category because even though they are needs, how you spend your money on these things might vary. One month, you might travel, which means you might spend more that month on gas and food/groceries.
- 20 percent of net income: Reserve about 20 percent of your net income for your financial goals. Three important goals to think about are paying down credit card debt, saving for retirement and building that emergency fund.
Start Saving Now
So, start now — one of the easiest ways to make regular savings deposits is to pay yourself first from each paycheck. That way, it’s gone before you even notice it’s missing. Though saving for retirement usually is priority, you might also want to make sure you have financial reserves for emergencies.
Set Specific Financial Goals
First steps to setting financials goals include:
- Securing a steady source of income.
- Making sure you have financial reserves.
- Protecting yourself and your family from financial upheavals or disaster by buying the right insurance for life, health, disability income and possessions.
Getting further ahead each year takes patience and planning. If your reserves stay flat, inflation will diminish its value. Stay alert and ready to go after opportunities to grow your money.
Think about what your personal financial goals are — sorting them by wants or needs might help. Decide which ones are long-term or short-term goals and prioritize them. Choose goals you’re enthusiastic about to help you reach them. FBN
Keith Todhunter Schaafsma, MBA, Certified Financial Planner, is the Senior Investment Adviser at Ascendant Financial Solutions. She has been creating peace for her clients from financial chaos for over 20 years. She and her husband Pieter, an artist, love to travel and enjoy the wide-open spaces of the Southwest with their two cherished dogs.
Securities and Advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC. Advisory Services offered through Ascendant Financial Solutions, Inc.
All investing and investment strategies involve risk including the possible loss of principal. Investment strategies cannot ensure a profit or protect against loss in a declining market.