Improving Your Personal Financial Literacy

dollars-426026_1280We send our children to school to learn to read, write and learn arithmetic, but many students graduate with very little financial literacy. These students become undereducated adults specifically in the area of financial literacy. This can be everything from not knowing how to balance a checkbook, compare prices, manage a budget, understand credit, savings or investing.
There are many online resources for education, including programs taught by CPA’s, financial advisors and insurance agents. In fact, is a website put together by the American Institute of CPA’s and has tons of information and tips. These are all good resources, but we wanted to also cover the basics. The first one to cover is the concept of the 50/30/20 Rule.

The 50/30/20 Rule

This financial literacy concept asks you to take your monthly budget and compare it against this rule.
Does no more than 50% of your income go toward your fixed expenses? This would include mortgage/rent, utilities, insurance, etc.
Next, does no more than 30% of your income go towards lifestyle expenses such as food, clothing, and entertainment?
Finally, the American Institute of CPA’s asks, does at least 20% of your income go towards savings and debt reduction?
If not, using this Rule as a template for your budget will improve your financial literacy. Here are a few more:

8 Tips to Improve Your Financial Literacy

1.Check your credit report for errors
At least once a year, check your credit score and credit report for any errors. Make changes as needed. The real trick to monitoring credit is to remember there are 3 different reporting agencies (Experian, Equifax and Trans Union). Each agency provides to give you a credit report for free each year.  Include or as a fourth resource and you will be able to review your credit quarterly.  Simply rotate resources, visiting one website per quarter, and you will be able to monitor your credit report four times per year.  This can be a much better solution especially in today’s world of identity theft being on the rise.
2.Make a list of all your income, expenses and debt
Keeping track of what is coming in and going out is critical for budgeting. Knowing your personal finances will show you where to cut and/or how much you can be putting away into savings.
3.Make sure you have enough Insurance Protection
Does anyone like insurance? Not really, but when we need it, it is something that can keep us out of bankruptcy. Review your coverages annually or whenever things change financially for you.
4.Open a “Don’t Touch” savings account
Plan to have at least 6 months of income saved. This will help in case of emergencies. It isn’t a matter of “if”, but “when”.
5.Make it a budget item to save
Be putting money into savings on a consistent basis. Looks for way to support this by auto-drafting the funds or finding other ways to meet this goal that works best for you.
6.Resist the use of Credit Cards
Credit cards can be convenient but they also encourage spending above your means. If you use credit cards, only use what you can pay off in one month.
7.Review your budget regularly
Sometimes your budget may need adjusting and you won’t know unless you are reviewing it periodically. It can help you catch areas where the spending has gotten out of control or where an increase is needed.
8.Use bonuses, raises and windfalls to increase your savings
Many people use their bonuses, tax returns and raises to increase their spending. Instead, considering spending a small portion and putting the remaining amount into a savings account.
If you would like more education to increase your financial literacy, Victor Amaya, CPA with Clear Path Accountants, has been teaching a series related to this topic at many of the local Denver incubators. For more information on where you can learn from him, contact him at

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