Financial literacy is the ability to understand how money works: how someone makes, manages, invests, and spends money. Unfortunately many Americans are lacking basic knowledge in this area.
Recent surveys showed the following:
- Only 46 percent of Americans have a “rainy day fund” (FINRA)
- 66 percent of Americans would be unable to come up with $1,000 in an emergency (Associated Press-NORC Center for Public Affairs Research).
- Nearly 1/3rd of Americans pay the minimum due on their credit card each month (FINRA)
Imagine my great joy at recently working with a fiscally responsible “late 20’s, just married couple” as a guest CFP for the Seattle Times (look for article in upcoming Sunday edition in May). The couple is AWESOME.
As they shared their story, it was clear, that for one of them, being fiscally responsible had not always been the case. Through a difficult relationship and some less than stellar financial decisions, debt and the resulting downgrade in credit scores, became an issue. But, as life righted itself, met the right partner, things fell into place.
They were thrilled when they got married because it afforded them the financial ability to financially support their favorite charities; their church, a student athlete foundation and a group that brings art to the general population. Can I clone you?
But what about the “other stuff”? The short, medium and long term needs? Did they have that covered too?
Short term needs (0-3 year category). General rule of thumb, is having 3-6 months of liquid savings accessible to pay your base line expenses. This couple already has 3 months covered now and is working on building that up to 6-7 months. Check!
They also want to travel during these first years of marriage and have that covered with income earned from side coaching job and small business clients. Check!
Medium term needs (3-7 year category). They do want to buy a home. And, they feel they can save/invest pretty hard for that goal beginning now but are willing to be flexible if it takes ten years to make that happen. Check!
Long term needs (7-10 years and longer). They are already doing a good job of saving for retirement fully understanding the concept of getting “compounding” working for them early in their lives. Both have 401ks (saving 7% currently) and one has a pension. Check!
My take on things is that they are going to do well. Why?
- They are careful with debt and keep credit cards paid off
- They live within their means
- They have built expenses and savings into their budget (short, medium and long term needs)
- They are willing to be flexible, and if need be extend the time needed to reach their goals
- They are willing to be accountable to making beneficial changes if it will better protect them, their lifestyle and future
- And most importantly, they agree and are committed to being fiscally responsible together – they are on the same page
We also addressed estate plan questions, as well as making sure they are carrying the right insurances and amount of insurances so they don’t get financial derailed if a life changing event occurs.
This couple is doing so many things right at such an important time in their lives. By managing debt, saving hard, living within their means and finding a partner that feels as they do about money, their financial future looks incredibly bright.