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Financial Literacy Month

Financial Literacy Month

By: Julie Waddle

Published in: Financial Literacy

Your 30-step path to financial wellness

In honor of the 30 days of the year that have been dedicated to financial literacy, the experts at Money Management International (MMI) created a 30-step path to financial wellness.

April is the official National Financial Literacy Month; however, regardless of the day or month of the year you begin, the 30-step path will help you to create a successful strategy to better your overall financial position.

Make a commitment to your financial future and take the first step today.

Step 1: Commit to change

The first and most important step in developing and following a financial plan is to examine your attitudes about money.  Are you ready to accept responsibility for changing your financial situation?  Do you believe that you can and will change the way you make financial decisions?  Can you identify at least one benefit you hope to gain by changing your money management behavior?

You are definitely ready and able to start your path to financial wellness; if you are also willing, take the pledge!

For more information on making a commitment, read this blog post by a member of the President's Council for Financial Literacy.

I pledge to take steps to improve my financial wellness.

Step 2: Assess your financial situation

Start your journey with a self assessment designed to motivate you. Completing this simple quiz can help you assess your current financial situation.

Read more in Gerri Detweiler's blog post on the importance of assessing your financial situation.

Step 3: Clearing out financial clutter

You may be anxious to get started, but it is hard to get motivated when you are knee-deep in paperwork. Getting your financial house organized is a great way to begin on your path toward financial wellness. But before you bulldoze that pile, you should know that some things are worth hanging on to. The key is to know what keep and what to toss. 

  • Grocery receipts and other nondeductible expense receipts and statements can be destroyed after they have been recorded for budgeting purposes.
  • Paycheck stubs should be checked against your W-2. If it’s a match, you can toss them. If not, request a revised W-2, called a W-2c.
  • canceled checks should generally be saved for three years. Keep those related to your taxes and business expenses permanently.
  • Utility bill stubs may be destroyed after recording, however, you may wish to hold onto these for a year to compare monthly costs. 
  • Household documents pertaining to buying, selling or improving your home should be kept as long as you own the home.
  • Receipts from major purchases should be kept as long as you have the item.
  • Credit card receipts can be destroyed once you have reconciled with your monthly statement.  Additionally, credit card monthly statements can be destroyed on an annual basis.
  • Individual tax return documents should be kept for seven years, according to the Internal Revenue Service (IRS). The IRS has three years from your filing date to audit your return if it suspects good faith errors. However, the IRS has six years to challenge your return if it thinks you underreported your gross income by 25 percent or more. 

Finally, before taking out the trash, be sure that all identifying information has been destroyed to avoid your personal information falling into the wrong hands. For more information about keeping your identity safe, read How to: Protect yourself from identity theft.

For more information on this topic, read Karen McCall's blog post on clearing out the clutter.

Step 4: Set yourself up for success

While all members should be aware of the family’s overall financial situation, choosing one person to conduct the day-to-day financial tasks is a good way to stay on top of things. The appointed individual should be organized and a good communicator. They should be given uninterrupted time to do their tasks effectively. 

Consider making the job of family CFO easier by establishing an online bill payment service (offered free-of-charge by many banks and credit unions). Even better, check with your creditors about setting up automatic bill payments. 

Designate a spot in your home for organizing financial paperwork. Used office supply stores offer great bargains on filing cabinets, or consider small plastic filing cabinets instead of metal or wood. If your goal is have a paperless filing system, make sure that you back-up your computer regularly and invest in a good security program to prevent criminals from obtaining sensitive information. To keep your most valuable documents safe, consider opening a safety-deposit box at your local bank or credit union.

For further reading, learn how to set yourself up for financial success from time management expert Marcia Francois.

Step 5: Get copies of your credit reports

Your credit reports can provide a snapshot of your overall financial situation. Reviewing your credit reports for accuracy can also help you to identify errors or fraudulent activity. Fortunately, it is easier than ever to obtain copies of your reports. 

The FACT Act gives every consumer the right to a free credit report every year from each of the three major credit bureaus: Equifax, Experian and TransUnion. To get your free report, simply fill out the request form. You can also visit or call 877-322-8228.

The three major credit bureaus are separate entities. It is important to know this because the information in their reports may vary slightly. Different creditors use different reports (or a combination of them) to determine whether or not you are creditworthy.

Your creditworthiness matters most when you are trying to obtain credit. If your credit report indicates that you have maintained your credit well, you should have a good chance of receiving additional credit when needed, provided you have enough income to qualify for additional credit. 

Credit reports might also matter when renting an apartment, obtaining insurance or securing some types of employment. The Fair Credit Reporting Act (FCRA) dictates that credit information is accessible to others only for certain permissible purposes. For your protection, you are entitled by law to know who has received a copy of your report or inquired about it.

Step 6: Clean up your credit report

If you find an error on your credit reports, you’ll need to know your rights. Your most effective weapon in dealing with the credit bureaus is the Fair Credit Reporting Act (FCRA). Legally, the FCRA protects you by requiring credit bureaus to furnish correct and complete information to companies requesting credit histories for evaluation. If you find an error on your report, simply follow these steps:

  • Write to the credit reporting agency disputing the item and include any supporting documents. Keep a copy of all documents for your files.
  • When the credit reporting agency receives your letter disputing the item, they must investigate the item in dispute (usually within 30 days) by presenting the information you submit to the creditor.
  • By law, the creditor must review your evidence and report its findings to the credit bureau.
  • The credit bureau must then give you a written report of its investigation and a copy of your report if the report results in a change.

You can also fill out an online dispute form provided by the credit bureaus. The websites for the three major credit bureaus are:

If an item on your report is found to be an error and is corrected, you can request that the credit bureau send corrected copies of your report to any creditor who received your report in the previous six months or any employer who received your report in the previous two years.

If you are not satisfied with the results of a formal dispute, you can also seek resolution with the source of the information. To do this, write to the creditor disputing the incorrect entry. After receiving your letter, the creditor may not report the information without including a notice of your dispute. In addition, once you have notified the source of the error in writing, it may not continue to report the information if it is an error.

For more information on cleaning up your credit report read about how to dispute consumer credit reporting errors and fix your credit report.

Also, see this video and blog post by Andy Jolls on how to clean up your credit report.

Step 7: Make your money count

To develop an accurate picture of the amount of money you will have in the future, take a look back.  Decide if your income will be from the same or from different sources and the amount of income you can expect to earn in the future. 

Use this Income Worksheet Form to help you determine the amount of income you can realistically count on.

For more on this topic, Jim from Bargaineering has a blog post on how to make your money count.

Step 8: Identify your starting point

Calculating your net worth is as simple as comparing what you owe (liabilities) and what you own (assets). Use this simple form to determine your net worth as of today.

For more information, read a multitasking mommy's blog post on calculating your net worth.

Step 9: Do you pass the debt test?

Freedom from debt is an achievable goal for every family. The first step in regaining control is to take an honest look at your existing obligations. Take this debt test to determine if you need a plan for payoff.

Step 10: Set your priorities

Creating a list of needs and wants can help you establish your financial priorities.

Check out this financial priorities worksheet that might be useful in getting you started. There are also some blank items to record your family’s needs and wants. Check whether the item is a “need” or “want.”  Then, rank the item’s priority based on importance. When you are finished, put the worksheet in a safe place, it will be very helpful when setting financial goals!

To learn more, see a Personal Marketer's blog discussion on how to set financial priorities ... and remember them!

Step 11: Set SMART financial goals

Before you think about setting goals, review the five parts of SMART goals.

S A smart goal is specific. It pinpoints something you want to change to achieve.
M A smart goal is measurable. You can measure or count a SMART goal.
A A smart goal is achievable. Setting goals too high can lead to frustration.
R A smart goal is rewarding. Reaching the goal should be a reward for your hard work.
T A smart goal is trackable. Set milestones and schedules for your goals.

For further reading, see Grant Baldwin's blog post on setting SMART goals.

Step 12: Set short-, mid-, and long-term goals

Personal financial goals will differ in the length of time needed to achieve them. Short-term goals are priorities that can be accomplished within two years. Be sure every goal has a specific purpose, a dollar amount that it will cost, and a realistic target date.

Mid-term goals are priorities that can be accomplished within two to five years. Make sure your goals are realistic and flexible. If you set your goals too high, frustration will keep you from reaching them. 

Long-term financial goals are priorities that may take more than five years to accomplish. Most long-term goals require regular savings.   

For more on this topic, see Wise Bread blogger Linsey Knerl on goal setting.

Fill out this financial goal worksheet to get started.

Step 13: Pay down your debt

There are two popular methods that people use to tackle debt. 

The first is to concentrate on paying off the debt with the smallest balance first (never forgetting to make required payments to all debts, of course). After that balance is repaid, you can then apply that payment to the card with the next smallest balance and continue the process until all debts are satisfied. This method can be very rewarding because you see progress quickly. 

The second popular method is to first concentrate on repaying the debt with the highest interest rate. This method will save you the most in interest charges over time. Regardless of the method you choose, be patient and persistent.

Try using this easy calculator to determine what it will take to pay off your credit cards. For this, it might be helpful to refer back to your debt load worksheet.

For more advice on paying down debt, check out these insightful articles: Snowball vs. Avalanche, How to pay off a lot of debt in a hurry, and What a Debt Management Plan can and cannot do for you.

Step 14: Expect the unexpected

Unfortunately, bad things sometimes happen to good people. In fact, bankruptcy filers often site an “unforeseen” event as the cause of their financial demise.

In addition to long-term savings, financial experts agree that consumers should aim to have three to six months living expenses saved for emergencies. By learning to expect the unexpected, you can keep a minor financial setback from turning into a major financial crisis.

Use this helpful calculator to help you determine how much to set aside for emergencies.

For more information, read what Generation X Finance founder Jeremy Vohwinkle advises for creating a safety net.

Step 15: Secure your financial future

Don’t despair if you are behind on your retirement goals. If it is any consolation, you aren’t alone; studies show many households are not adequately prepared for retirement.

Here are some things to consider when assessing your retirement savings:

  • Take advantage of available resources.  Participate in your company’s retirement plan, particularly if they have a “matching funds” program. Not participating in this type of program is literally leaving money on the table and passing up significant tax advantages. If a company program is not available to you, consider establishing an Independent Retirement Account (IRA).
  • Seek professional guidance.  A trusted planner can help you to determine the amount to withhold.  They can also help you determine your tolerance for risk and map out a comprehensive strategy that will bring you closer to your financial goals.
  • Take an active role.  When you enroll in a retirement plan, you spend time researching your investment options in order to make informed decisions. Yet most people fail to actively manage their accounts by rebalancing their allocation of assets when market conditions change. Rebalancing your portfolio every year to keep the percentages where you want them is the key to maximizing returns and minimizing risk. Also, if you have experienced a raise in compensation, consider increasing your retirement savings.

Finally, avoid cashing out early. Remember, if you withdraw money from your 401(k), you will have to pay tax plus a 10 percent penalty on any money withdrawn. This total tax bill will probably come to about 37 percent of the money you withdraw. Even your credit card companies don't charge an interest rate that high. For example, if you withdraw $10,000, you will probably realize only $6,300.  You will have to pay the other $3,700 in taxes. 

For more information, read a post by Pinyo from Moolanomy on securing your financial future.

Read the next 15 steps here! 


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