April is National Financial Literacy Month, which means it’s the perfect time for Americans to review their money situation and brush up on their financial education. Developing better money management skills makes it more likely that individuals will reach their financial goals. Unfortunately, nearly two-thirds of Americans (63 percent) can’t pass a basic financial literacy test.
To help Americans improve their financial lives, members of the American Institute of CPAs’ (AICPA) National CPA Financial Literacy Commission share the following tips.
USE CREDIT CARDS CAUTIOUSLY
“Credit cards allow people to make large purchases without carrying large amounts of cash, track spending and even earn rewards. However, when you find you’re unable to pay your balance off in full each month, you’re paying interest charges. And if you’re unable to make the minimum payment, it can result in fees, higher interest rates and a negative impact on your credit score. If you’re having trouble managing your credit card debt, tools like a credit card payoff calculator can help you map out a plan to pay down your balances and get a fresh start so your credit cards can start working for you.”
– Neal Stern, CPA member of the AICPA National CPA Financial Literacy Commission
IT’S NEVER TOO EARLY TO START SAVING
“A 401(k) can be one of your best tools for building a secure retirement. They provide two key advantages. First, the amount you put into your 401(k) account lowers the taxable portion of your salary in the current year. This means all contributions to your 401(k) grow tax free - you’ll only pay tax when the money is withdrawn. Second, many employers provide matching 401(k) contributions. If your employer does this, try to at least contribute the amount that gets you the maximum match; otherwise you’re walking away from ‘free money.’ Even a small contribution each paycheck can turn into a lot down the road. The AICPA’s 401(k) savings calculator can show you what starting today can do to support your retirement planning.”
– Michael Eisenberg, CPA/PFS member of the AICPA National CPA Financial Literacy Commission.
DO A FINANCIAL CHECKUP
“Knowing how much you have coming in compared to how much you’ve committed spend on things like rent, car payment, insurance and other bills is key to better understanding how much you actually have to spend on things like groceries, fun, and other financial goals like paying off debt faster. Making sure you keep enough set aside to at least pay the bills each month, then finding a way to keep the rest of your spending within what’s left over will help you avoid going into debt. Americans who need help managing a monthly budget can use the AICPA’s budget analysis calculator to run a report that will show them where their money is going and identify areas for improvement.”
– Kelley Long, CPA/PFS member of the AICPA Consumer Financial Education Advocates
PLAN AHEAD & READ THE FINE PRINT
“When buying a car, it is important to remember that, regardless of any attachment you may have to a brand or model, you are incurring a significant financial obligation that you will have to pay back over time. Before agreeing to any financing arrangement, read the fine print to make sure you understand exactly what you are getting into and make sure it fits into your overall budget. Lastly, if there are viable public transportation options in your local area, it might make sense to explore those as you evaluate your transportation or automobile needs.”
– Dr. Sean Stein Smith, CPA member of the AICPA National CPA Financial Literacy Commission
HAVE A BACKUP PLAN
“What’s on your emergency preparedness checklist? If you’re like most people, it includes water, batteries, a first-aid kit and an emergency contact list. What about the money you’ll need to deal with the situation? Disasters often strike quickly and without warning. Plan ahead, by setting up a separate account to build a ‘rainy day’ fund. Set a reasonable goal and start small, setting aside a manageable portion of each paycheck. Watch the fund grow, and when you reach your initial goal, you can decide whether a larger amount would give you more peace of mind. Most importantly, make a mental note of what the money can be used for (storm damage, illness, unemployment, etc.), and don’t dip into the fund for any other reason.”
– Margaret Poster, CPA member of the AICPA National CPA Financial Literacy Commission
DO YOUR HOMEWORK
“When it comes to taking out a student loan, don’t take out more than you can reasonably expect to earn in your first year in the field of your major. Make sure you first exhaust every available source of ‘free’ money before getting any type of student loan. Meet with a financial advisor at school to discuss available scholarships and also look for scholarships online. Finally, make sure you are aware of the difference in pay-off options between Federal and private student loans.”
– Tracie Miller-Nobles, CPA member of the AICPA National CPA Financial Literacy Commission
The AICPA’s 360 Degrees of Financial Literacy Program is a nation-wide, volunteer grass-roots effort to help Americans develop a better understanding of money management and take control of their financial lives.
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