Today is National Financial Awareness Day, and while being financially aware likely means something different to everyone, there are a few things that you can do to set yourself up for financial awareness success regardless of age, career, income, expenses or any other number of factors. 

1) Create or update your spending plan

Cash flow management involves developing a spending plan to tell your money where to go instead of wondering where it went. This is a key component of your financial plan whether you are younger and need to invest for your future or are retired and now need to keep spending within what your resources can support.

To create a spending plan (aka budget), start by dividing your after-tax net income into three categories: needs, savings and wants. Fifty percent of your income should be allocated to your needs, 20% should be set aside for savings, and the remaining 30% will be available for wants. It’s important to recognize your own priorities and lifestyle when breaking down expenses into these categories.

The expenses in each category will vary from person to person. But generally, the needs category will include things such as home mortgage/rent, car payment, groceries, insurance, minimum debt payments and utilities. 

The savings category could include 401(k) contributions, IRA contributions and other planned savings goals.

The wants category represents anything and everything extra such as entertainment, restaurants, vacations, electronic upgrades, shopping, memberships and subscription services. 

Be realistic with yourself – don’t drill down too far in your spending habits if you know you won’t have time to break down expenses every single time. Or it could work best for you to skip sub-categories all together and stay at a high level and just focus on needs, savings, and wants.

Going through this process and setting up or updating a spending plan in a way that works best for you will enable you to plan for your future and meet your long-term goals more effectively.

Tune in to this short Finance Moment podcast episode for more tips on categorizing your spending. Need a budget template? Check out a couple our team recommends here.

2) Set savings goals

Your long-term financial plan should provide you with the amounts needed to realize short-term and long-term goals. This can include paying down debt, building up your emergency fund, accumulating a down payment for a home purchase and retirement. If it helps you to create separate savings accounts for each goal, you can easily do that by making an appointment at your bank. 

One of best ways to ensure savings happens is to have investment contributions auto deducted from your paycheck and sent to your company retirement plans such as a traditional 401(k) or Roth 401(k). Then, ensure additional savings and investments – either short-term savings or long-term investments – are also being auto deducted from your bank accounts and deposited into other personal investment accounts.

A few ideal savings guidelines to keep in mind include:

• Have at least three months, but preferably six months, of living expenses in an accessible bank account. 
• Have amounts that you know you will be spending for one-time items in the next one to two years in a money market. 
• Have at least three years of needed investment withdrawal amounts in bonds. 
• Keep in mind that over time vehicles will need to be replaced and home repairs are inevitable. 

Check out this blog article about the best time to start saving and investing.

3) Conduct an expense audit

My husband recently mentioned that it is time to conduct a subscription audit of all recurring monthly charges we pay for. Some of them do make sense for us to keep, I’m sure, but there are probably a few we no longer need or use that can free up additional funds each month to be reallocated. 

Many of these expenses likely fall into the “wants” category, with nearly 90% of consumers underestimating how much money they spend on subscriptions, often by hundreds of dollars, according to a 2021 survey from consulting firm West Monroe. In addition to subscription services, there have been times where we’ve renegotiated internet and cable prices, as well as other more standard services that often aren’t considered something that can be negotiated. It never hurts to ask! 

Expense audits take time, and the companies and services you’re subscribed to generally don’t make it easy to cancel, but with a little time and effort it could certainly pay off. 

4) Commit to small changes

Just like undertaking anything new, (training for a race, vowing to read more and spend less time on social media, eating healthier and list goes on and on) we’re more likely to stick to something when we commit to small changes versus overhauling everything at once. 

The same is true for financial awareness. Identify changes you can make in your spending and commit to that change. Maybe it’s trying to make coffee at home or dining out two nights a week instead of three. The important thing is to find something you want to adjust and feel like you can continue. Behavioral changes don’t happen overnight, so start small with a daily or weekly change, then determine if it’s something you can manage long term.

5) Know your credit standing and how to protect it

Most people begin building their credit in their late teens/early 20s as they open their first credit card, rent their first apartment or finance their first car. Your credit score will determine whether you can be approved for credit cards, loans, mortgages and auto loans. It also influences the rate and terms lenders may assign upon approval. Keeping your debt low and paying your bills on time are the best ways to increase and maintain your credit score. 

It's wise to check in our your credit report and score annually at a minimum, and reports from all three major credit reporting agencies (Equifax, Experian and TransUnion) can be obtained via AnnualCreditReport.com for free once per year as authorized by federal law. 

Once you’ve built a good credit standing, it’s also important to protect it by ensuring no one else can access your credit. A good way to help avoid this is to activate a credit freeze. When you apply for a loan or credit, most lenders review your credit report from one or all three major credit reporting agencies. A credit freeze takes your report out of circulation, thus making it inaccessible. Without viewing a credit report or your credit score, lenders are not likely to extend credit, thereby reducing the chance that someone can establish a new credit line in your name.

To learn more about credit freezes and protecting your identity, tune in to this short Finance Moment podcast episode. 

Financial awareness includes a multitude of topics. These are just a few ways to ensure major components of your finances are in a good starting place. If you have questions about any of these topics, or how to take your financial plan to the next level, you can call Syverson Strege at (515) 225-6000 or request to be contacted online.