Financial Literacy Month is a good time to think about your financial wellness. Have you set goals, and are you on track to get there?
New Year’s resolutions? Yesterday’s news. If you made them, you likely broke them by Valentine’s Day.
Besides, spring is the natural time to hit the reset button. The vernal equinox marks the birth of a new growing cycle—and depending on where you live, it might begin with crocuses and daffodils poking their heads above the melting snow. As temperatures rise, we open up the house and let the fresh air in.
It’s a time of new hope—particularly important in 2021 as we look ahead to vaccinations, economic reopening, and a day when life might return to a semblance of normal after a pandemic that touched the lives of pretty much everybody.
Not coincidentally, springtime—April, to be exact—is National Financial Literacy Month. Perhaps it’s time to draw some inspiration from those budding flowers and trees and work toward personal financial growth.
Just as every garden plan starts with a check of those seeds and bulbs, your financial growth journey begins with a look at where you are. Here are a few questions to get you started:
By taking the time to plan and discuss these questions with your loved ones and seek guidance, you can better navigate life’s financial journey.
Like many things in life, your financial journey begins at home—let’s call it personal financial literacy. Have you set up a budget to monitor your income and expenses? Many financial pros suggest that as a good place to start. Separate your monthly expenses into needs, wants, and wishes (and let’s not forget taxes). Do you have an emergency fund you can tap into in case of unexpected expenses?
If you’ve squared away your home finances—including setting up savings goals—and you’re ready to begin investing, it might be time for the next phase. For many investors, that first step is a company-sponsored 401(k) plan—a defined-contribution plan that allows employees to make contributions from their paychecks before federal tax. Contributions go into your own 401(k) account, and you’re typically able to choose among investments provided under the plan.
Employers may offer a matching contribution, usually as a percentage of your contributions. If your employer offers a match and you can swing it, consider investing up to the matching limit to get the most bang for your buck.
Don’t have a company 401(k)? Or are you contributing to the max and want to invest even more toward retirement? Consider the Individual Retirement Account (IRA). IRAs allow tax-deferred growth on funds invested, and contributions may be tax deductible depending on personal circumstances. Withdrawals from traditional IRAs are taxed at current rates.
Do you have children? It’s never too early to begin teaching them the value of money and the power of compounding (which can help savings grow but can also make debt harder to pay off). And don’t forget about saving for college, perhaps with a 529 plan or a Coverdell education savings account.
Although you can invest in many instruments, they can be boiled down to a few major types: stocks, bonds, ETFs, and mutual funds.
If you’re invested in a company 401(k), your choices may be limited to a few mutual funds. But if you have an IRA, or if you’ve opened up a brokerage account, you have a much wider set of choices.
Recall the questions above, specifically the one about risks and risk tolerance. If you’re looking for exposure to more asset classes and you’re comfortable with the risks, you might consider options, futures, and forex markets. Keep in mind these products may not be right for everyone.
Options, futures, and forex markets are complex instruments requiring special privileges in your trading account. Not all accounts will qualify. Plus, these instruments involve leverage (margin), which can amplify gains and losses alike.
Financial knowledge is indeed powerful stuff. Although there are bound to be a few gaps in anyone’s financial literacy, the good news is that there’s a wide range of investing education resources to help:
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