Financial Literacy 101: The Key to Building a Secure Financial Future

The key to building a secure financial future is as much about knowledge as it is about having a lot of money. Lots of people with tons of money have squandered it away because they were financially illiterate. Many with very little have lifted themselves out of poverty by learning as much as they could about money and business matters. Whether you’re just starting out or trying to turn bad finances around, here are some of the basics you should know.

Start Saving as Soon as You Start Earning

Every time you get a paycheck, put a certain amount or a certain percentage into a savings account. If you start doing this as soon as you start earning, you’ll have a tidy sum by the time you hit the age of 21. Those who don’t make a habit of saving will find that they have nothing to show for the years of hard work, except maybe a handful of possessions. When you put money aside for later, life’s unpleasant surprises won’t upend your life. You’ll have security. You’ll have money to pay for the expensive car repair, that last minute flight to see an elderly relative one final time, or that out-of-pocket medical bill. You’ll also have cash on hand to take advantage of the opportunities that will come your way in life, which could be the ticket to lifting you into a more lucrative financial situation.

Your Credit Habits Are Being Tracked

Even if you don’t pay attention to your credit history, credit agencies are tracking it. Every time you make a payment on time, it gets noted on your credit file. The same thing happens when you’re late with a payment. It’s not just about your credit score; it’s about your credit history and how you use credit. When it comes time for you to borrow, apply for credit or a mortgage, all that history is going to be used either for you or against you. It’s worth every penny to subscribe to a credit monitoring service, where you can track your own credit on a weekly or even daily basis. Not only does it let you know where you stand, but it can be very motivating as far as trying to create the best credit history possible.

Understand the Differences Among Financial Experts

There are important distinctions among various financial experts. Knowing these differences will help you to get the right help you need from people you can trust to put your interests first.

Actuary

Actuaries primarily work within the context of pension plans, retirement funds, insurance and investments. They often work in the interest of companies, conducting due diligence and research into risk management and setting insurance premium rates.

CPA

CPAs, or Certified Public Accountants, are licensed professionals who offer individuals and businesses support around tax matters, financial planning, auditing, cash management and financial consulting. They may work in a CPA firm or another entity or for themselves. They do not represent any entity other than their clients.

Accountant

Accountants may or may not have formal education, and are a step above bookkeepers. They handle a broad range of general financial tasks, often in a support role for CPAs. They may work for a company or for themselves.

Financial Advisor

Financial advisors provide guidance on various aspects of personal finance and investment management for individuals. They may have interests other than their clients and may receive income, commissions or bonuses for bringing new business to particular investment funds or companies.

It’s Okay to Change Jobs For more Money

In the past, people stayed at the same company for 25 years or more. But what’s often forgotten is that “back then,” that long stint at one company often paid off with a pension well into old age. Today, pensions are very rare unless you work for an educational institution or government agency, so there’s no impetus to stay at the same job for decades at a time. You shouldn’t feel so loyal to a company that you forgo the opportunity to earn more money elsewhere. You don’t get a prize for staying in the same job. So keep trying to increase your salary, even if it means saying goodbye to a job you enjoy. The end result might just be a happier you, with less stress over money. In some cases, you might even be offered a raise at your current job if they feel they don’t want to lose you over money.

Work on Some Form of Passive Income as Soon as Possible

When you’re younger, it’s fine to spend 40 hours a week or more earning your salary. As time goes by, you’ll have less energy and may grow weary of getting yourself to the office everyday. As early on in life as you can, work on getting some kind of passive income. It doesn’t have to be the kind of income that allows you to buy a Bentley with a chauffeur; it can just be supplemental income that takes some of the pressure off later in life. Then, if something happens and you can’t work full-time or you want to supplement your social security in retirement, you’ll have a little something coming in to help pay for groceries or add some discretionary money to your budget.

Get Rich Slow

There are lots of recent examples of people becoming rich almost overnight. Bitcoin made lots of millionaires, but many of them lost their profits just as fast. NFTs are an inexplicable trend where we still have to see how they play out. Social media influencers make it seem like they’re making money hand over fist. But these examples aren’t reliable for a secure financial future. YouTube channels can be demonetized on a whim. Crypto is like playing Jenga. Focus on steady, educated financial moves, and you’ll get ahead no matter what the latest fads are.

For more help on building a secure financial future based on your individual resources and situation, consult with your CPA, who is on your side and no one else’s.

by Kate Supino