Financial Education Resources

Understanding how to manage money wisely, from budgeting for daily expenses to setting aside funds for long-term goals, can be a game-changer.

The majority of Americans have debt. The interest and fees we pay to take out a loan can burden us for years. This is why minimizing debt as much as possible is so important for our financial well-being.

You can help your family become financially savvy.

Let’s face it: Family finances can be complicated. But understanding how to manage money wisely, from budgeting for daily expenses to setting aside funds for long-term goals, can be a game-changer. Let’s look at saving, spending, budgeting, and how it all fits together.

The Four Pillars of Financial Education

Talking about money can be difficult. To make it easier to broach the topic and have meaningful discussions, break the subject down into four parts:

1. Earning. Knowing how money is earned within a household is vital for fruitful family conversations. Whether you’re a parent, partner, or caregiver, understanding this aspect sets the stage for financial awareness.
2. Borrowing. Although debt is best avoided, borrowing money can become a recurring event in life. Understanding borrowing and the responsibility of debt management, whether it’s for small purchases as a child or significant investments as an adult, contributes to overall financial health.
3. Spending and saving. Financial health hinges on comprehending the balance between spending and saving. Paying for necessities and desires requires proper financial planning and understanding the connection between the two.
4. Financial decision-making. Making wise financial choices, whether it’s significant purchases or prudent savings decisions, can have a profound impact on the entire family. Lead by example and share how you make certain financial decisions to model responsible financial behavior for your children.

The Importance of Savings

Let’s go a little deeper into the topic of savings. Only about 40% of families have liquid savings equal to three or more months of expenses, and just 20% have more than six months. Saving money, even in small amounts, holds immense significance for families. Here’s why it matters:

• Emergency fund. Life happens, and having savings set aside for unexpected expenses, like car repairs or medical emergencies, can prevent falling into unnecessary debt during difficult times.
• Short-term goals. Committing to saving for short-term goals, like travel or home improvements, enhances your overall quality of life and financial security.
• Long-term goals. Saving lays the foundation for achieving long-term objectives, such as buying a home or a car. Understanding the benefits of different types of savings accounts aids in reaching these milestones.
• Ideal retirement. Retirement planning should start early. Saving a substantial portion of your income over the long term is essential to ensure a comfortable retirement, and various strategies can help achieve this goal.

Creating a Family Budget

Budgeting can help you save more and get control of your spending. The 60-20-20 rule is a popular budgeting method that divides income as follows:

• 60% for living expenses. Housing, transportation, food, and other essentials are considered living expenses – the costs associated with basic daily living and health. Remember to factor in living expenses into this category that you may pay only quarterly or annually, like insurance, as well as any outstanding debt you need to pay off. Portion off 60% of your monthly take-home income to pay for these expenses.

• 20% for savings. This category includes money that you set aside to create an emergency fund, invest, or save for future purchases like a home or car. Set aside 20% of your monthly income to meet his goal.
• 20% for fun. These are things you enjoy but can live without. Eating at restaurants, going to concerts or shows, going on dates, and buying new clothes are all examples of what your discretionary spending budget should include. Plan to use only 20% of your monthly income here.

You may need to adjust these amounts to fit your situation. For example, if you have a large amount of credit card debt to pay off, you may want to take 5% from the fun category and add that into living expenses until your debt is gone.

Tracking Your Expenses

To get a good idea about how much money you need to set aside for wants and needs, it’s important to track your expenses. There are many ways to do that. Here are a few options.

• Notebook and pencil. A traditional and reliable way to write down expenses manually.
• Spreadsheet. Use ready-made budgeting spreadsheets or create a personalized one with built-in formulas for easy calculations.
• Online software or app. Try customizable tools that may sync with your accounts to manage spending and savings efficiently.
• Envelope method. Allocate cash for each expense category in labeled envelopes, limiting spending to the available cash in each envelope.
• Budgeting tools. Explore various online budgeting tools that suit your lifestyle and facilitate easy expense tracking.

Knowledge Is Power

Understanding the four pillars of financial education — earning, borrowing, spending/saving, and financial decision-making — and embracing a budgeting method are the first steps toward financial literacy. Practice and consistency will turn budgeting into a habit, leading to improved financial well-being for your family’s future. If you have questions or need help managing your finances, reach out to a Fidelity Bank banker today.