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April is Financial Literacy Month

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April is Financial Literacy Month

It's that time of year again! Financial Literacy Month has begun and it's important to have a few financial terms under your belt. For this month, as you reintroduce yourself to financial terms, also review how your fellow Americans are doing when it comes to their finances. It may encourage you to strengthen some significant areas for yourself.

Saving versus Investing

Saving

Saving is a plan to set aside a certain amount of your income over a short period of time to accomplish a short-term goal – just like your emergency fund!

Investing

Investing is how you make your money grow or appreciate for your long-term financial goals – like your retirement! Investing is accomplished by having your money make more money for you by utilizing the power of compounding and time. The earlier you start investing, the more time your money has to grow.

Emergency Fund

Whether you have enough saved to cover medical emergencies or six months' worth of living expenses if you lost your job, it's important to have a sum of money to cover the emergencies you don't see coming down the road.
 
According to a GOBankingRates survey, more than half of Americans still don’t have enough saved to cover common financial emergencies.¹
 
How do Americans fare when it comes to covering specific emergencies?

 

Americans with less than $1,000 to cover expenses in the event of a job loss1:

38%

However, more than a quarter of respondents have $10,000 or more saved for such an emergency.1

Americans with less than $100 saved for car repairs1:

23%

More than half have less than $1,000 saved for the same emergency.1

Americans with less than $100 in savings for medical expenses1:

25%

Nearly half of Americans have less than $1,000 saved for a medical emergency.1

Paying for Emergencies

When it comes to covering unexpected emergencies, how do Americans plan to cover the cost? According to BankRate's latest Financial Security Index survey, Americans plan to cover the expense by2:

 

Pay the costs from savings2:

39%

Finance with a credit card, pay off over time2:

19%

Reduce spending on other things2:

13%

Borrow from family or friends2:

12%

Take out a personal loan2:

5%

Where do you stand?

 

Make this the year you build up your emergency fund to cover three to six months' worth of living expenses. After you pay down any debt you may have, work toward contributing to your savings account. Start on covering one month's worth of expenses and continue to grow from there.

 

This financial safety net can protect you from unexpected emergencies and may keep you out of debt.

Retirement

Start Early, Start Now

Your Nest Egg

You should start saving for retirement as soon as possible. The earlier you start,

the more time you have to let your investments grow. 

Average American Saved for Retirement

The 2018 Retirement Savings survey found that 42 percent of Americans have less than $10,000 saved.3  


According to GOBankingRates, if Americans do not boost their savings, they’ll likely retire broke because that’s not enough to cover a year’s worth of expenses. On average, adults 65 and older spend almost $46,000 a year, according to the Bureau of Labor Statistics.3
 

Americans with nothing saved for retirement3:

13.7%

Americans with less than $10,000 for retirement3:

28.6%

Americans with $10,000 - $49,999 in retirement savings3:

6.7%

$50,000 - $99,9993:

12.6%

$100,000 - $199,9993:

12%

$200,000 - $299,9993:

9.9%

Americans with $300,000 and more in retirement savings3:

16.5%

Why Aren't Americans Saving for Retirement?

40.1%

I don't make enough money3

10.3%

I won't need retirement savings3

5.7%

I'm prioritizing paying down debt3

9.2%

My job doesn't offer a retirement plan3

24.9%

I'm struggling to pay bills3

9.9%

I used my retirement savings for an emergency3

The Good News

The survey found that the majority of Americans have more than $10,000 saved for retirement.3


 

Nearly 7% have
$10,000 to $49,9993

Nearly 13 percent have
$50,000 to $99,9993

More than 12 percent
have $100,000 to $199,9993

Nearly 10 percent have
$200,000 to $299,9993

About 16 percent have $300,000 or more
in retirement savings3

Credit Card

Terms to know.


 

APR

APR stands for annual percentage rate, which is the interest rate you’ll pay to borrow money using your credit card. If you make a purchase and then just pay the minimum due (or any amount other than the full bill), you’ll be paying interest.4

Minimum Payment

Your minimum payment due each month is the smallest amount of your balance that you can pay by the due date and still meet your terms — it is not your full account balance. This amount is only a percentage of what you really owe, and if you only make the minimum payment each month, you’ll continue to owe interest on the portion of your balance.4

Statement Period

Cardholders receive 12 statements a year from their credit card, each covering a length of time called the statement period. This month-long period begins on the statement opening date and ends on the statement closing date.5

Grace Period

Most credit cards have a grace period, which is the time between the statement closing date and the payment due date when cardholders can pay their statement balance in full and have their interest charges waived.5

Average Credit Card Debt by Age

The average American has $6,879.99 in credit card debt.6



Credit card debt: $709.796

Credit card debt: $7,327.426

Credit card debt: $3,382.356

Credit card debt: $4,290.076

Credit card debt: $9,878.096

Credit card debt: $1,755.336

Paying Down Debt

There are different ways to pay off debt. One way is The Debt Snowball Method. With this method, you pay off smaller debts first. Research shows it's much easier to stay motivated for the long term when you pay off lower balances quickly.7

 

1. Pay the minimum monthly payment on all of your debts.7 

 

2. Devote any leftover money to the debt with the smallest balance.7

 

3. Once that debt is paid off, devote its previous monthly payment and leftover money to your next-smallest debt.7

Budget

Stop Yourself from Overspending

Monthly Budget

Whether it’s on paper or utilizing the many helpful budgeting apps out there, your household needs to know the amount of money available to spend each month. Breakdown your monthly income into planned spending categories like groceries, mortgage, gas, credit card bill, emergency fund or whatever else your household needs to plan for that month. Make it specific and track how much your household spends from each category to keep from overspending. 

What happens when you start to budget?

It keeps you from overspending and potentially going into debt.

You keep your financial goals, like buying a house, on track by contributing the planned amount of money that aligns with your monthly budget.

A budget helps you prepare for retirement and build an emergency fund by continuing to put aside the planned amount for these important financial categories.

A budget helps you rethink your spending habits and re-focus your financial goals. Paying down debt, an emergency fund and retirement should trump eating out at restaurants or excessive shopping.

Make This Year Different

With financial literacy comes prioritizing your finances. Don't let "keeping up with the joneses" take priority over your financial health. It's time to nix living beyond your means. Take control by actively paying down any debt, build an emergency fund and contribute to retirement. Start now and stick to a plan.





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Citations.

1 - Most Americans Lack Savings to Pay for These Huge Emergencies, http://www.chicagotribune.com/business/ct-biz-emergency-savings-personal-finance-20180208-story.html

2 - Most Americans Don’t Have Enough Savings to Cover A $1K Emergency - https://www.bankrate.com/banking/savings/financial-security-0118/

3 - Survey Finds 42% of Americans Will Retire Broke — Here’s Why, https://www.gobankingrates.com/investing/why-americans-will-retire-broke/

4 - The 4 Most Important Credit Card Terms to Understand, https://www.magnifymoney.com/blog/building-credit/4-important-credit-card-terms-understand1388745422/

5 - 8 Credit Card Terms Everyone Should Know, http://blog.credit.com/2014/09/8-credit-card-terms-everyone-should-know-96879/
6 - Generation of Debt: The Average Credit Card Debt by Age, https://www.gobankingrates.com/net-worth/average-credit-card-debt-by-age-us/

7 - Debt Snowball Versus Debt Avalanche: What The Academic Research Shows, https://www.forbes.com/sites/robertberger/2017/07/20/debt-snowball-versus-debt-avalanche-what-the-academic-research-shows/2/#6c82b8ea75d4

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