COVID has Changed the Way Many Americans Think About Money
It may seem strange to suggest that there has been any positive outcome from the pandemic, but the last two years have certainly given Americans a new perspective on the need to pay attention to their financial future.
Two years ago, 45 percent of Americans said they felt financially secure. That’s down to 35 percent. Nearly 20 percent rated themselves as financially insecure. That’s up seven percent from pre-pandemic levels.
There are two actions you can take to improve your financial situation now and in the future:
- Improve your financial literacy – learn more about the basic financial concepts, so you make better decisions going forward.
- Create a financial plan. Set goals and lay out your path to achieving those goals.
“The number one problem in today’s generation and the economy is the lack of financial literacy.” Alan Greenspan, Former Chair of the Federal Reserve of the United States.
What exactly is financial literacy? It’s understanding the concepts of budgeting, investing, compound interest, and how to do personal financial management. You can see that creating a financial plan won’t be an easy task if you are lacking in financial literacy. This is the first step to improving your financial situation.
Steps to financial literacy
Learn how to budget. You need to have a handle on where your money is coming from, how much you need, and where it goes.
Understand what makes up your credit score, why it’s important, and how to improve that number.
Read up on how compound interest works so you can make smart decisions about saving and investing money for the future. This also applies to loans and credit cards. Make sure you know what the interest rate is and what it means in terms of how much you will have to pay back.
Once you have your financial literacy in place, start your financial planning by imagining the ideal life and what you’ll need to achieve that dream. Set your financial goals. You should think about retirement goals, but you also need a shorter-term financial plan for the more immediate future. Do you want to buy a house? Maybe you want to save for college fees or even a family vacation. Once you have the goal you can write down the financial plan to help you achieve that.
The plan should have three components:
1. Life is never a smooth ride. If we learned anything from this pandemic, it’s that life can take a sudden and completely unexpected turn. There are always setbacks or unexpected events, so build an emergency fund into the plan. “Apart from just an emergency savings fund, protect yourself and your family with the right insurance policies -life insurance, disability, and long-term care,” advises Darren Nomberg, Senior Vice President, Investments, for David Lerner Associates.
2. Debt: this covers all loans, credit cards, and other forms of debt. Make lit of how much each one is, what interest rate it carries and what your monthly payment is. Figure out the most efficient way to pay off this debt and free up that money for other things.
3. Investing for the future: List all your financial goals. Start with the small ones and go all the way to your retirement income goal. Create the budget that will give you the ability to save for those goals.
Working with a financial advisor can help you figure all this out and steer you in the direction of growing your money safely.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
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David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC