Do you remember how you first learned to manage your personal finances? Did anyone sit you down to show you how to balance a budget? Explain how interest works? What about the importance of a good credit score? Without these important money management lessons, it would be a lot harder to reach your financial goals. Unfortunately, nearly two-thirds of Americans can’t pass a basic financial literacy test. April was National Financial Literacy Month—a perfect time for Americans to brush up on their financial education. However, financial education should be practiced all year long. To help Oklahomans get a better grasp on their finances, the Oklahoma Society of Certified Public Accountants (OSCPA) presents two of the most alarming personal finance trends and tips for how to navigate them:
1. Fewer Americans are following a budget. The Great Recession was devastating financially. It saw millions of Americans lose their homes and their retirement savings. It also created a generation of Americans who are likely to be worse off financially than their parents. One of the only silver linings was that it caused people to take a closer look at their financial habits. However, as the economy has continued to pick up steam over the past few years, it seems these lessons are starting to fade. A recent American Institute of CPAs (AICPA) survey found the percent of Americans following a monthly budget has declined from 58 percent in 2015 to 39 percent in 2018. Knowing how much you have coming in compared to how much you’ve committed to spend on things like rent, car payment, insurance and other bills is essential. Because that number dictates how much you have available to spend on things like groceries and achieve financial goals, like paying off debt faster. Using a free online budget analysis calculator can help you understand where your money is going and identify areas for improvement.
2. Debt is rising and rainy-day funds are lacking. Earlier this year, U.S. consumer debt reached $4 trillion for the first time ever—with one trillion of that consisting of credit card debt alone, which is also the highest number on record. Debt isn’t necessarily bad. But it’s important to have a plan to pay it off without incurring high interest charges and ensure that you never miss a payment. If your credit card debt feels like it’s too tough to tackle, tools like a credit card payoff calculator can help you develop a plan. There are many options. Some people start with the highest interest rate debt, while others prefer to pay off smaller balances first so they have fewer outstanding accounts. The important thing is that once you’re armed with a plan, stick with it. Because if you’re diligent about tackling your debt, you’ll eventually get to a zero balance—which means a fresh start!
Unfortunately, living paycheck-to-paycheck while struggling to pay off debt is the reality for many Americans. So, it’s not surprising that 40 percent of all Americans can’t cover a $400 financial emergency without borrowing cash or selling their possessions. That’s why emergency savings are so critical—for those unpredictable situations. To get started on an emergency fund, set a reasonable goal at first, setting aside a manageable portion of each paycheck. As your fund grows to meet your initial goal, make a mental note of what the money can be used for (unexpected job loss, damage from a natural disaster, medical emergency, etc.) and don’t touch the money for any other reason.
CPAs in Oklahoma and all across the country have long been volunteering their time to help Americans make better financial decisions. The AICPA’s 360 Degrees of Financial Literacy is a public service on behalf nation’s CPAs. The resources and tools on the site contain no product placement and no advertisements—just solid financial information, vetted by CPAs to help Americans take control of their financial lives.
Don’t just speak to your CPA when it’s tax time! Many CPAs meet with clients on a regular basis throughout the year to ensure financial plans are staying on track. If you don’t have a CPA, you can get a free referral and free 30-minute consultation in Oklahoma at www.FindYourCPA.com. Find more money tips by liking Know What Counts on Facebook, following Know What Counts on Twitter or visiting www.KnowWhatCounts.org.