Being financially literate can be a broad subject, but then again it can also be quite specific. Whichever way you look at it, money smarts is something that you need to have and as an adult in any stage of your life and a tool that is endlessly useful. No matter if you are a beginner or advanced in your knowledge, below are three pieces of financial advice that should be a part of anyone’s financial management process.
Don’t Ignore Your Debt
Debt can cripple your overall net worth, and it is essential that you understand debt in general as well as your specific personal debts and what they mean for your financial situation. High interest debts are something that you will always hear professionals tell you need to be eliminated as soon as possible, and that is for good reason. When you are shelling out money every month to try to lower your total owed what you might not realize is that often if you are only paying the minimum amount due, you are going to end up paying so much more in interest than is necessary.
The type of debt you carry is also important to navigate. Your mortgage and student loans are quite different than multiple maxed out credit cards. But still there are ways to lower even the good kinds of debt to improve your standing. Your student loans are a great example because the rates when you signed for them are likely different than they are presently. When that is the case, you can utilize a NaviRefi student loan refinance to lower your monthly expenses and decrease the amount you will pay in interest. With the difference in funds between your old and new payments you can then pay off higher interest debt without having to shake up your monthly budget and other spending needs.
Retirement is a Number Not an Age
Many people think that retirement is an age, once you hit this age, you will retire. While that is a great target to work towards, some of the most fiscally savvy people know that retirement is actually a dollar amount, not an age. You need to think about finding purpose in retirement and how much money you will need to live the life you want to live once you stop earning an income. Once you decide what that number will be, you can then calculate how much total retirement savings you will need based off the number of years you will be living off those saved funds exclusively.
If you need $150,000 per year to live the life you want to live and are 67 years old and have yet to hit your total savings goal, you probably cannot comfortably retire. On the other hand, if you hit that total savings goal at 44 years of age, you might be looking at the opportunity to retire early. Of course, there are things to consider like first and foremost, the fact that nobody can predict exactly how long they will live, and also any income you may be generating passively or through investments while retired should be considered as well. But once you start viewing retirement as a number not an age you might find that your savings plan has a more refined timeline.
Emergency Funds Aren’t a Myth
Having an emergency fund is not something that everyone just talks about but isn’t really prioritizing. The people that have the highest levels of financial literacy are actively creating emergency savings funds and leaving them untouched except for, you guessed it, an emergency. Deciding what will dictate an emergency is certainly a personal choice but many people choose to leave the definition as major events like job loss, sudden illness, or unexpected and expensive car or home repairs. Giving yourself a firm outline of what constitutes an emergency will help you avoid dipping into this fund intermittently simply because you may have strayed away from your budget.
How much money should you have in an emergency fund? One of the most common questions. This number is going to be specific to you, but a good general rule of thumb is three months’ worth of living expenses should you suddenly lose the ability to earn money. Once you have established that bottom line number, that doesn’t mean that you need to stop contributing to this fund, it just means you can consider smaller contributions.