Since April is Financial Literacy Month, I thought we’d throw down with some Financial Basics.
Below are a few kernels of knowledge we ideally would have been taught in public school, had financial literacy been mandated, ahem.
Alas, instead we get to “celebrate” ‘Financial Literacy Month’ every April, as of 2004.
Here we go!
Know your Assets & Liabilities, aka your Net Worth.
What do you own?
What do you owe?
Add up all of your “Assets” (think: Checking/Savings and Retirement account balances and personal property such as real estate equity and auto values).
Next, add up all of your “Liabilities” (think: credit card/loan balances and mortgage debt). To calculate your Net Worth, subtract your Liabilities from your Assets.
The goal to building wealth is not only to have a positive Net Worth but a Net Worth that is in general on a positive trajectory overtime.
Know your Budget: Income vs Spending.
How much are you bringing in each month, vs how much is going out?
You will never have full control over your finances until you are able to identify exactly where your money is going.
Once you can pinpoint your specific numbers relating to Income and Expense, you can devise a plan to do what you like with the money left over, in order live in line with your values, and meet your goals.
How much do you need to save in order to meet your goals?
Which brings us to..
Know Your Savings Rate.
Once you’ve identified your Main Expenses (also known as “Needs”) and have made sure your income allows for those to be paid, you can decide how much money you want to automate towards your goals. Divide the amount you’re directing to Savings by your Monthly Income, and you have your savings rate.
Note: Industry Standards suggest shooting for 15% of your pre-tax income ((matching dollars included, if any)) to Retirement Savings, and 5% to a General Savings once Emergency Fund is funded (generally, 3-6 months worth of Needs).
Any amount you can afford is a great start!
Unlocking Abundance 