Your car needs to be fixed, your electricity bill increased again, and you just found out your child needs braces. You may be overwhelmed and stressed by life’s surprises, but we’re here to help you by sharing financial literacy basics.

What is financial literacy?

At its most basic, financial literacy is simply understanding money—how to earn it, how to spend it, how to use it to your advantage. But it also encompasses your personal behaviors, beliefs, and systems surrounding money.

We’ve created a roadmap for financial literacy beginners so that a broken car and some crooked teeth won’t send you in a tailspin but will empower you to take action.

Step One: Determine where you are.

What are your current income, debts, and expenses? What accounts have balances on them and how much? Look at your credit cards, student loans, personal loans, mortgage—
all accounts that have a balance to be paid.

Also consider your spending habits: Do you spend more on groceries when you’re feeling hungry? Do you buy things when you’re sad or upset? Do you spend too much for the holidays and then carry credit card balances into the new year? (You’re not alone, by the way.)

Lay everything out on the table and let yourself see your patterns without judgment.

Key takeaway: Be honest and nonjudgmental with yourself and your current financial situation.

Step Two: Make your budget.

We know, we know. Making a budget is easy in practice, but not in execution. Following a budget forces us to look at the reality of our finances (see step one again). Sometimes we’ll have to make sacrifices, and it feels not good. Create a realistic budget based on what you’ve discovered in step one about your income, debts, and expenses. Maybe you’re thinking, “I don’t need a budget, I earn money and pay my bills just fine!” And that’s likely true, but a budget will also help you to see where and
how much is coming in versus where and how much money is going out.

Key takeaway: A budget doesn’t mean deprivation—it’s a guidebook.

Step Three: Consider your credit score.

Notice that we didn’t say “fix” or “raise” your credit score but consider it. What is your credit score right now and how do you think you’ve come to get that score? Maybe it’s low because you don’t have enough credit history or have a high debt-to-income ratio. Maybe it’s higher than you thought because of consistent on-time payments and responsible

Your credit score is a snapshot of your overall credit report. It can help you buy a car, a home, and make short-term decisions such as limiting credit card spending.

However, your credit score doesn’t change drastically overnight. It can take several months or even years to see significant change. We’re not saying this to discourage you, but to remind you that while your credit score is important, what’s more important are your daily actions.

Want more guidance on credit scores? Read How to Get Smart About Your Credit on our website.

Key takeaway: Check your credit score often, but don’t get too hung up on it.

Step Four: Create consistent habits.

Okay, we’ll be honest: this step sounds simple, but it takes practice and can be a challenge. Be kind and patient with yourself.

So, what habits should you consistently have? We suggest starting with:

  • checking your bank accounts every day (for available balance and pending transactions)
  • paying your bills on time (use a reminder app or automate your payments)
  • following and checking on your budget weekly (update as often as needed)
  • checking in with yourself before making a big purchase

That last one might be a big change for you, and that’s okay! But when you’re mindful about what you’re spending your money on, you give yourself the chance to say “Yes, I really do want to buy this!” or “No, this purchase doesn’t align with my goals right now.” This is an incredibly powerful habit to learn!

Key takeaway: Patience and consistency are nonnegotiable when making changes.

Step Five: Make a goal (or two).

The next step is to create a goal for yourself that’s realistic, achievable and something that actually means something to you. If it’s not important enough, you won’t follow through—
it’s just human nature.

After looking at your income and expenses, maybe you’ve noticed that you’re carrying a credit card balance of $1,500 and your first goal will be to pay off that balance in the next six months. Or maybe your goal is to buy a new car, but you need to make some wiggle room in the budget.

Be clear on it, commit to it, and write it down if it helps.

Key takeaway: Goals are guideposts and help determine what’s important to you.

Step Six: Pay down debt.

Perhaps this is already a goal that you’ve created in step five. Awesome! But even if it isn’t your goal, if you have debts, you should work to eliminate them.

There’s no “right” way to get rid of debt. You can pay off your smallest balances first for a quicker win. You can target balances with higher interest rates first to save you the most money over time. Whichever you choose, don’t miss payments on one balance as you’re targeting another. This could rack up late fees, damage your credit score and keep you in
debt longer.

Paying down debt will build your confidence and put you back in charge. It will open up more opportunities for you when it comes to your finances, we promise!

Key takeaway: Debt payoff equals freedom and more confidence.

Step Seven: Start saving for an emergency fund.

Building an emergency fund before you tackle your goals will give you peace of mind, encourage you to keep going, and prevent you from potentially going back into debt with
an unexpected bill.

When you know there’s money tucked away to help should you fall, you won’t need to lean on credit cards or same-day, high interest loans. You’ve already taken care of yourself and considered future You! How amazing is that?

So… how much do you save for your emergency fund? It depends. Experts say to aim for 3-6 months of living expenses (refer to your budget). But if that seems like too high a number to start with, then we suggest you start saving any amount that you can—even if it’s $100. Keep at it and you’ll get there!

Key takeaway: An emergency fund is like insurance for Future You.

Pro tip: Change takes time and persistence. Old money habits and belief systems can be
hard to break.

Step Eight: Celebrate and educate yourself.

A lot of this information might be new territory for you, and it can seem scary. That’s why we recommend always celebrating yourself along the way—the small wins and the big

We also think that continuing to educate yourself is important. Read books, blog articles, and listen to podcasts of topics that interest you. Maybe you’d like to learn more about money mindset, belief systems, and breaking old cycles. Or maybe you’re more interested in money management and creating organized systems for budgeting, spending, and tax
prep, for example.

Like your goals, whatever you’re more interested in, you’ll be more likely to stick with, and it will give you confidence and encouragement.

Key takeaway: Always celebrate your progress.

Step Nine: Learning to handle the “tough stuff.”

A great thing happens when you practice these steps and have patience with yourself: You accept where you are financially, and you start to get rid of old beliefs about money that don’t help you. You also start to see that money doesn’t need to be a source of stress, scarcity, or fear, but a powerful tool to help you get to where you want to go in life.

Naturally, you’ll become better at making financial decisions should an unexpected event or expense surprise you (and they always will). You’ll know what to do because you’ll be in control of your money and not the other way around.

Key takeaway: You can handle the tough stuff—trust us. Financial literacy is a personal journey and is different for everyone. By following these nine steps, you’ll gain an understanding of the foundational principles of financial literacy. And after you’ve mastered the basics, you’ll be able to progress into other levels of financial
literacy that can truly change your life.

If you’d like additional financial resources from Auburn Savings, visit any branch and a Customer Representative can assist you.
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