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Financial Literacy for Families
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Let’s face it: Family finances can be complicated. However, grasping the art of effective money management – from daily budgeting to securing future financial goals – can transform your approach. Let’s delve into saving, spending, budgeting, and how it all fits together.
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The Four Pillars of Financial Education
Talking about money can be difficult. To make it easier to broach the topic and have meaningful discussions, break the subject down into four parts: - Earning: Understanding household income sets the stage for financial awareness.
- Borrowing: While it's ideal to avoid debt, borrowing can become a neccesity. Mastering borrowing and responsibly managing debt enhances overall financial well-being.
- Spending and saving. Financial health hinges on comprehending the balance between spending and saving. Paying for necessities and desires requires proper financial planning and understanding the connection between the two.
- Financial decision-making. Making wise financial choices, whether it’s significant purchases or prudent savings decisions, can have a profound impact on the entire family. Lead by example and share how you make certain financial decisions to model responsible financial behavior for your children.
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The Importance of Savings Only about 40% of families have liquid savings equal to three or more months of expenses, and just 20% have more than six months. Saving money, even in small amounts, holds immense significance for families. Here’s why it matters: - Emergency fund. Life happens, and having savings set aside for unexpected expenses, like car repairs or medical emergencies, can prevent falling into unnecessary debt during difficult times.
- Short-term goals. Committing to saving for short-term goals, like travel or home improvements, enhances your overall quality of life and financial security.
- Long-term goals. Saving lays the foundation for achieving long-term objectives, such as buying a home or a car. Understanding the benefits of different types of savings accounts aids in reaching these milestones.
- Ideal retirement. Retirement planning should start early. Saving a substantial portion of your income over the long term is essential to ensure a comfortable retirement, and various strategies can help achieve this goal.
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Creating a Family Budget Budgeting can help you save more and get control of your spending. The 60-20-20 rule is a popular budgeting method that divides income as follows: - 60% for living expenses. Housing, transportation, food, and other essentials are considered living expenses – the costs associated with basic daily living and health. Remember to factor in living expenses into this category that you may pay only quarterly or annually, like insurance.
- 20% for savings. This category includes money that you set aside to create an emergency fund, invest, or save for future purchases like a home or car.
- 20% for fun. These are things you enjoy but can live without. Eating at restaurants, going to concerts, going on dates, and buying new clothes are all examples of what your discretionary spending budget should include.
Adjustments may be necessary based on individual circumstances. For instance, reallocating 5% from discretionary spending to living expenses can expedite debt repayment.
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Knowledge Is Power
Understanding the four pillars of financial education — earning, borrowing, spending/saving, and financial decision-making — and embracing a budgeting method are the first steps toward financial literacy. Practice and consistency will turn budgeting into a habit, leading to improved financial well-being for your family’s future. If you have questions or need help managing your finances, reach out to us!
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How-To Videos Get the most out of Online and Mobile Banking with our step-by-step tutorial videos that cover topics like: Transfer Payments, Account Preferences, & Bill Pay.
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April’s Financial Literacy Month FinLit Challenge Congratulations to Lucy, Jason, and Katie! Thank you to everyone for joining us in April’s FinLit Challenge.
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Archie is available 24/7! Did you know: When you log in to Online and Mobile Banking, Archie can show you your most recent transactions? Learn More!
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Holiday Closures Memorial Day - Monday, May 27th
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Federally Insured by NCUA
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