Apr 1, 2023 11:30:00 AM | Financial Goals Financial Literacy 101: Take Control of Your Money Today


If you believe financial literacy is only for the wealthy and well-educated, think again. Everyone should be financially literate regardless of their financial status or educational background.

Unfortunately, that's not the case. According to a recent survey, only 57% of U.S. adults have the skills they need to manage their money, borrow and save responsibly, and understand how and why to invest. The result is that many people struggle with their finances. Fortunately, you can take steps to take control of your money. Read on to learn about financial literacy and why it’s crucial.

What Is Financial Literacy, and Why Is It Important?

Financial literacy is the ability to understand and manage your money, including how to budget, save, invest, and protect yourself from financial risks. It also includes knowing how to use credit responsibly and make informed decisions about insurance, taxes, retirement planning, and other financial matters.

Having a good grasp of financial literacy helps you take control of your money and make sound decisions. Here's why it makes sense to be financially literate:

  • Plan for the future: Financial literacy teaches you to set goals and create a strategy to achieve them, including saving for retirement, planning for college tuition, building up an emergency fund, and investing in the stock market.
  • Protect yourself from financial risks: Financial literacy helps you identify and protect yourself from financial risks. This includes knowing how to use credit responsibly, making informed decisions about insurance, and managing debt.
  • Build wealth: Financial literacy includes how to make smart investments and build wealth, such as investing in stocks, bonds, mutual funds, and other financial instruments.
  • Make informed decisions: Financially literate people make objective decisions about their money, know how taxes work, budget for expenses, and have a plan to pay off debt.

Understanding Your Personal Finances

The journey to financial literacy starts with understanding your personal finances. To do so, you need to know how much money you make, how much you spend, and where it goes.

Here are a few tips to get started:

1. Create a Realistic Budget

Creating a realistic budget is the first step to taking control of your finances. Here are some of the benefits, steps, and challenges of having one.

Benefits of Having a Budget

  • A budget shows you exactly where your money is going and how much you can spend.
  • It helps you set financial goals and track your progress so you can achieve them.
  • Budgeting is the first step towards cutting back on spending so you can save more.

Steps To Create a Budget

  • List all sources of income. Start by tracking all sources of income, including wages, investments, and any others.
  • Identify regular expenses. List all your expenses, including rent or mortgage payments, utilities, groceries, entertainment, and others.
  • Allocate money for necessities. Set aside enough money for food, housing, transportation, and other necessities.
  • Allocate money for "wants." Allow yourself money for “nice to haves” like vacations, entertainment, and hobbies.
  • Allocate money for savings/investments. Ensure you have enough money to save and invest for the future.
  • Review and revamp. A budget isn’t static. Review it regularly to ensure it is still realistic.

Challenges of Having a Budget

  • Impulse spending. It can be difficult to stick to a budget, especially if you're used to spending freely.
  • Lack of discipline. It takes time and discipline to adjust your spending habits.
  • Income changes/unforeseen events. Unexpected events can throw off your budget and make it difficult to stay on track.

2. Track Your Spending

Tracking your spending is an essential part of financial literacy. It helps you understand where your money goes and where you can cut back on spending. Here are three practical tips to help you get started:

  • Set up a system to track spending. Use a bank app to automate the process. For example, Valliance Bank's app allows you to categorize your spending and create budgets.
  • Classify expenses. Organize your expenses into categories such as food, entertainment, and transportation.
  • Analyze spending habits. Analyze your spending habits to identify where you can cut back and save more money. For example, if you're spending too much on entertainment, try watching more movies at home rather than going to the theater.

3. Set Financial Goals

Setting financial goals is integral of financial literacy. It helps you stay focused and motivated. Here are three tips to help you get started:

  • Set short and long-term goals that are realistic and achievable. Your objectives should be achievable within a specific timeframe.
  • Prioritize goals based on their importance and urgency. For example, if you want to clear your credit card debt, prioritize that goal over others like entertainment and vacation.
  • Create a plan to reach your goals. Once you've set your goals, create a plan to reach them. This could include setting up an automatic savings plan.

4. Manage Debt

Did you know that 340 million Americans carry some form of debt? That limits their ability to save and invest. That's why managing debt is a critical part of financial literacy.

Below are the common types of debts and why managing them is important.

Types of Debt

  • Secured debt - Backed by collateral, such as a house or car.
  • Unsecured debt - Not backed by collateral and usually has higher interest rates, such as credit card debt, student loans, and medical bills.
  • Revolving debt - Allows borrowers to borrow and repay the loan repeatedly.
  • Installment debt - Requires the borrower to make a set number of payments over a specified period.
  • Student loan debt - Pays for education expenses

Benifits To Pay Off Debt

  • Reduces financial stress - Having less debt provides more financial stability.
  • Improves your credit score - High balances harm your credit score, making it more difficult to get loans.
  • Increases available income - Paying off debt frees up money for savings or other expenses.
  • Avoids interest and fees, which add up over time.
  • Helps you reach financial goals - When you pay off your debt, you can use the extra money to buy a home, fund college, or for any other expenses.

5. Invest and Save for the Future

Investing and saving for the future are two of the most crucial components of financial literacy. They help you build wealth, reach your financial goals, and secure a comfortable retirement.

Understanding Investments and Why They’re Important

Investing is the process of putting money into assets with the expectation of earning a return. You can invest in stocks, bonds, mutual funds, real estate, and other asset classes.

Why Invest?

Here is why investing makes sense:

  • Build wealth long-term - Investing can help you build wealth over time by taking advantage of compounding returns.
  • Create passive income - Investing allows you to earn money without actively working.
  • Diversify your portfolio - Thanks to strategic investment, you can spread your wealth across stocks, bonds, mutual funds, real estate, or other assets.
  • Save for retirement - Investing your money is a strategic way to save for retirement through options like 401(k)s, IRAs, and annuities.

Understanding Savings and Why They're Important

Saving for the future helps you fulfill specific objectives including building an emergency fund, reaching your financial goals, and becoming more financially secure.

Types of Savings

Types of savings include:

  • Emergency Fund - You can use an emergency fund for unexpected events such as losing your job, medical bills, and home or car repairs. An emergency fund should cover three to six months of living expenses.
  • High-Yield Savings Account - This type of savings pays higher interest rates and is excellent for the short term.
  • Certificates of Deposit (CDs) - This saving product requires you to keep money in an account for a set amount of time. That means it carries higher interest rates than typical saving accounts, but you may incur penalties for early withdrawal.
  • Money Market Accounts - This savings model has a higher balance requirement and may have restrictions, but it pays a higher interest rate and offers easy access to funds.
  • Retirement Accounts - Popular retirement accounts include individual retirement accounts (IRAs) and employer-sponsored 401(k) plans.

Why Save?

Here are the top reasons why saving makes sense:

  • Cushion for unexpected expenses/emergencies - With adequate savings, you can cover unexpected expenses without relying on credit cards or loans.
  • Peace of mind - Having a financial cushion provides peace of mind and helps you sleep better at night.
  • Financial stability/independence - Saving allows you to reach financial goals, such as buying a house or car, or taking a vacation.

How Valliance Bank Can Help

At Valliance Bank, we understand the importance of financial literacy and are here to help you take control of your money. We offer a variety of savings and investment products to meet your needs. Our experienced team provides personalized advice and guidance so you can make informed decisions about your finances.

Why wait? Contact us today to learn more about how we can help you reach your financial goals!