Creating A Financial Toolkit
This is the second in our series of blogs for National Financial Literacy Month. Our focus in this blog is on creating a financial toolkit. Whether your goal is to manage debt, begin a savings plan, or salt that extra income away for retirement, you need a financial tool kit.
Here's what you need to know.
What Should Be in The Toolkit ?
Toolkits, by definition, require tools. A financial tool can be anything from a stubby pencil and a notebook to a software program like QuickBooks. Typically, the number of tools in your toolkit will depend on your age, income, assets, and your need to prepare for financial emergencies while building wealth.
Here are a few of the basic components of a financial toolkit:
Budgeting Tools
One comedian described her budget as a stream of dollar bills passing overhead where she periodically grabbed one and bought a pack of gum. If that describes how you manage your income and spending, you might need to take steps to manage your money and achieve financial clarity.
The immediate benefit of a budgeting tool is that you can begin identifying unnecessary spending that can be corralled into a savings plan. Again, your budgeting tool can be on paper or come to life on an Excel spreadsheet.
Read about the 5 purposes of budgeting in this Investopedia article.
Saving Tools
Everyone needs an emergency fund as well as a long-term savings plan. An emergency fund can be insurance against going into crippling credit card debt when an unforeseen financial crisis can only be resolved by ready cash. An emergency fund that is fed into long-term savings has the following advantages.
- Reducing stress in your life.
- Protecting you against economic downturns.
- Minimizing your reliance on carrying debt.
- Promoting better financial discipline.
- Becoming a strong foundation for your retirement planning.
“You must gain control over your money or the lack of it will forever control you.”
– Dave Ramsey
Insurance Tools
Insurance can be your ultimate emergency fund. It provides financial security for your survivors and peace of mind for you. Whether you should buy term insurance, whole-life cash accrual policies, or invest in annuities depends on your age and life expectancy. Do some comparison shopping to make insurance the foundation of your financial tool kit.
Investment Tools
Investments can be the high-yield, yet volatile tools in your financial tool kit. They produce income and grow wealth over the long run. A financial advisor can be a valued ally in balancing your risk and leveraging the tax advantages that come with some investment tools.
Debt Management Tools
Managing debt—especially credit card debt—nowadays is the tool that can help you avoid high-interest charges and a damaged credit score. Your budgeting tools need to factor in your monthly debt payments. It could be time to consolidate your debt and begin a sensible spending and savings plan. Debt consolidation can be a valuable tool to bring your budget back into balance.
Here's what you need to know.
Why Creating a Financial Toolkit is Important
If you want to avoid confusion about money management, your financial toolkit is your path to clarity and the power that comes from knowledge. That knowledge has to be based on a realistic assessment of your assets versus liabilities. Increasing the former and decreasing the latter is where the toolkit comes in.
Your toolkit helps you achieve your financial goals, or change those goals to align with your resources. You’ll know where your money is being spent, see where you can cut back, and start building that emergency fund. It’s all about living below your means and assessing those means within a budget and sensible spending plan.
The Advantages of Financial Preparedness:
Lack of financial preparation can lead to:
- Restricted access to credit and escalating debt.
- Postponed achievement of financial goals and missed opportunities.
- Increased anxiety and the potential negative impact on your quality of life.
Whether you need debt consolidation or a debt resolution program to reduce credit card balances, we can help. Contact us today!