Now is the time of year when we make resolutions to exercise regularly, lose weight, and eat better, blah, blah, blah. But how about financial literacy? No matter what phase of life you are in, when is the last time you took a good look at your finances? Was it last year, figuring your taxes? Did you wonder where your money went or why you are in that high tax bracket? Not happy with the rate of return on your investments? Did you see the new box on your W-2 that shows how much your health insurance really costs if your employer was not subsidizing it? Hint: that is what you can budget for in retirement.
Financial literacy is defined as the ability to understand how money works in the world; how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all their financial resources. Raising interest in personal finances is now a focus of government programs, who are trying to streamline government by cutting programs and services. Basically, this initiative makes it your responsibility to plan for your financial future. You cannot put all your eggs in one basket.
In an effort to measure my financial progress and redirect my course, I took a college course last year. In it, I learned there are many websites to help me plan along the way. Besides Social Security’s website, you can visit ING’s website to find out the total number of diverse assets you need to retire. Do a web search for longevity estimators or retirement calculators and you will find all kinds of tools. You need to know your life expectancy to do your planning. Learning how to use these tools in class and comparing them lead to pretty similar conclusions: I must keep working a bit longer, keep saving, stay debt free. Basically, I need to make good choices and keep my goal in mind.
Planning for retirement starts early; parents are a child’s first teacher to get their kids off to a good start. When kids start kindergarten, they are expected to be able to write their name, recite the alphabet and count to twenty, not to mention having mastered self-care skills such as tying their shoes, putting on their coat and zipping it, buttoning clothes, personal hygiene, packing their school backpack and doing some chores. By the time kids start kindergarten, many families have started college funds for the kids, but have those same parents started their own retirement fund? As the kids get older, teaching children about money in an age appropriate way will help them avoid the overuse of credit and to start saving for a rainy day, big ticket items, college and someday, their own retirement. The goal is to have them be independent thinkers who can care for themselves. You see, the earlier you start saving for college or retirement, the faster it compounds. Unfortunately, many wait until the kids are grown and college is paid for to start their retirement. Catching up is hard to do; slow and steady wins the race. Payroll deduction is a great way to pay yourself first. Try boosting your retirement savings 1 percent this year. If you were lucky enough to get a raise, how about putting it in your savings?
I have written before about couponing, store rewards, senior citizen discounts, shopping the sales and stockpiling. This really escalated when I realized those savings equals money in my retirement account. Example: we put in a new light fixture. It says to use 3 R20 bulbs. What is that? Ah, it is the replacement for the incandescent bulb invented by Thomas Edison 134 years ago that turned into a dinosaur on Jan. 1. You see, in 2007 the federal government mandated more efficient energy standards. The average household could save $6 per month just by changing 80 percent of the bulbs in their homes. Hmm. This example was also taught in the class I took. There must be something to this.
So on Jan. 2, my husband and I joined mass quantities of shoppers, many in the lighting aisle, comparing these new-fangled bulbs. We found the R20 that touted an estimated energy cost of $.90 a year per bulb and a life expectancy of 22.8 years. The light is in a seldom used room. My husband and I are not getting any younger, and were giddy at the thought of the utility savings and that we may never have to buy light bulbs for that room again in our lifetime. We had the same elation when we replaced our roof because we went with the higher quality shingles so we may not have to worry about roof repairs or replacement in our old age. Cha-ching! More money stays in the retirement fund in later years and less chance of that big ticket expense in retirement!
No, we are not sick, depressed or suicidal. We do not suffer from seasonal affective disorder. We are just practical in our more mature age, and get some satisfaction from saving money and putting that in the bank. Also, reducing our monthly expenses will benefit us in retirement. My husband uses Consumer Report (thanks Al and MB) and online comparisons including reviews to help us in making major purchases.
Consider preparing for your old age or start giving your kid’s an allowance and teach them the importance of saving and pay as you go. Things have changed with the recent Great Recession; parents can seldom afford to support their adult kids or grandkids without jeopardizing their own retirement. Many of the Baby Boomer generation have suffered setbacks in their retirement funds or job losses, and may be looking to their kids or grandkids for assistance. With recent economic downturns, younger Millennial and Generation Xers are not in a position to take in their parents or cover their debts. This is where boundaries need to be set and enforced (otherwise known as tough love). Live below your means, but within your needs and have emergency savings. Do not expect an inheritance.
All generations, be they employers or employees, seem hesitant to trust that the economy is gradually improving; www.careerbuilder.com reported 24 percent of companies say they will hire full time permanent employees in 2014. Are you under or unemployed? When is the last time you updated your resume? Networked? Have you considered taking a class to update your skills to catch a potential employer’s interest? Haven’t got a computer or computer skills? Go to the library and use a computer to take the first step to a better financial future!
Health, life and other insurance is something else that needs to be evaluated as a regular part of financial planning. When did you last talk to one of the many good agents on the plateau?
And always a touchy subject: do you know where your parent’s important papers are? Are their wills, medical directives and powers of attorney up to date? Are they doing okay managing their money or do they need to hand over those reins to someone else? Who should that someone else be? Tough love is needed here, too.
As the new year begins, make it your personal responsibility to be financially literate in 2014. Start your planning right here in Bonney Lake. Take a class, read the financial pages of the newspaper or get a book at the library. Hire a financial planner, research online or ask your CPA or attorney for some direction. It will pay off in the end.
First, obtain your free credit report or call 877-322-8228. You get a free one from each of the three main credit reporting bureaus each year. Stagger one request every four months to take advantage of free credit reports throughout the year.
Back to those health resolutions I mentioned in the first paragraph. Taking care of yourself now means you may have less that ails you in the future, reducing healthcare costs in older age. Prevention works.
Resolve to be financially literate in 2014.
