If you lost your job today, do you have enough savings in your account for the next three months? One month? Two weeks? Financial Literacy is the key essential ingredient to really managing your money. Financial literacy is possessing the ability to use knowledge and skills to realistically manage your income. Did you know nearly 4 out of five employees live paycheck to paycheck? On top of that more than half of working individuals never save money from month to month.

In previous generations, cash was used as a primary method for purchases and used for a distinct purpose; today, it is displayed flamboyantly and often times used absentmindedly. The way we purchase things and spend our money has changed as well. Due to the crucial differences, it has created the possibility to use and overextend credit which essentially leaves workers in debt.

Smart decisions must be made with your money in order to eliminate as much stress as possible. In school, we are taught to read and write but there is a lack in the proper education of managing personal finances. A major component to understanding personal finances is to never live above your means. Know how much your bills cost in total from month to month and know how to create a budget. Somehow, the act of budgeting has been turned into a horror story. Research shows that many people associate budgeting with being restrained, when it is actually the complete opposite. When you have a budget, you get to declare a purpose for every dollar you have which in turn actually gives you freedom.

When you have a budget you have an action plan and clear understanding of what you spend your money on each month. When you are intentional with your money, you learn about the freedom that it gives you. Being financially literate certainly involves understanding your debt and proactively working to decrease it. The more you pay down on installment loans such as car loans and mortgages, then the less interest you pay. A great way to pay down debts like that is with the Snowball method. Dave Ramsey does an excellent job at explaining this debt reduction strategy where you pay the minimum balance on all of your debts except the smallest one. The smallest debt, you pay as much as you can and once that is paid off, go to the next smallest debt.

There are innumerable options available to help you create and stay on a budget. A very accessible and popular resource for you is the Mint app you can download on any smartphone. This app easily keeps track of your spending as well as provides suggestions based on your spending habits. Additionally, another highly recommended budgeting app is You Need a Budget. This resource is designed to encourage you to end living paycheck to paycheck by living off last month’s income.

When you discipline yourself with your money and invest in long-term delayed gratification, that’s when you’ll start building wealth. Reevaluate your purchasing habits and hold yourself accountable on what your money is put into. Pay yourself first, and I do mean into a savings account, money market account, or even a certificates of deposit (CDs). The key is to always prepare for the future. At the end of the day, it is not how much you can spend that matters, but how much you can keep.

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