Financial Literacy Month: How to build best foundation for financial well-being

ByABC7 Chicago Digital Team WLS logo
Sunday, April 2, 2023
Building foundation for financial well-being
April is Financial Literacy Month, and now is a great time to examine your spending habits.

CHICAGO (WLS) -- April is Financial Literacy Month, and now is a great time to examine your spending habits.

Over one third of people have more credit card debt than emergency savings, the highest percentage in 12 years, according to a recent Bankrate survey. As inflation continues to pinch wallets, it is now more important than ever to make smart money decisions.

Pratik Patel from BMO Family Office gave ABC7 some financial pointers to help consumers get on the right track:

  • Spend less than you earn to firmly establish a habit of saving.
  • Participate in your employer's 401(k) - especially if there is a match! You a are leaving free money on the table if you don't. If that's unavailable to you, create your own savings plan. Many apps are available to round up purchases. You'll be shocked how quickly compounding works to your advantage.
  • Take advantage of your behavioral tendencies and bucket your income sources into: short term spending and lifestyle maintenance needs, long-term savings for emergencies and repairs, charitable spending, family endeavors, and reward money.
  • Start investing now. Investing small amounts early allows compound interest to work in your favor. If you had an investing horizon of 30 years and invested $100 per year for just the first 10 years, and it compounded at 8% (the long-term average) for the entire period, you'd end up with more than $7,200 by the end of 30 years. That's a more than $6,000 gain on the $1,000 you put in. On the other hand, if you waited 10 years to start investing, and then invested that $100 per year for entire rest of the time (20 years), you would only have $4,900 at the end of that same 30 year period. That's less than half the total on double the investment.
  • Be careful with debt, subscriptions and pay-in-installments. They can sneak up! Establish a process to do periodic reviews.
  • Construct a basic "balance sheet." Look at your long term debts (car loan balance, CC balance, unpaid mortgage, etc.) and assets (total realistic current resale value of home, car, etc), and "cash flow" statement (your income streams versus expenses).
  • Be realistic about your money personality and devise methods to work with or around it. Are you a saver by nature, or a spender? Are you an emotional spender (do you cruise Amazon or respond to social media ads while bored watching Netflix?).
  • Use auto saving plans, auto 401(k) enroll, salary increase escalators and auto rebalance options.
  • If you are in a relationship, have regular money "chats." Understand that folks are wired differently, and chose realistic ways to work with both your personalities. You may chose for joint funds and personal funds or spending limits.
  • Don't be afraid to assemble a team of experts. Investing well for the long term often (almost always) requires you to operate from an uncomfortable place. If you are doing it yourself, you have to be willing to buy when no one else likes that asset or asset class and sell when everyone loves something. You have to be willing to do a substantial amount of research and presume that your data or ideas are better than the most well financed, well heeled, long established full time processes.