Learn about the "Bare Necessities" as part of Economic Education Month
Only the 26 letters of the alphabet are used to write every book on the shelves at the library. Only the single digits, 0 to 9, are used to create the numbers that make the world go ‘round. There are only a few fundamental components to some of the most significant things we use in our lives. Our finances are no exception. There are really only three basic things a person needs to successfully manage their resources.
First, a SMART goal
Specific, Measurable, Attainable, Relevant, and Time-sensitive. Every goal can benefit from the SMART goal rubric. When a person works on the “S” and determines specifically what they are trying to accomplish almost all of the other steps fall in line.
- “I want an A+ Credit Score!” – A great specific target!
- “I need to save up for a down payment.” – How much exactly? Be as specific as possible.
- “I want to go to on a fun vacation.” – Where do you want to go? Prices vary wildly.
- “I need to clean the house.” – That’s almost a SMART goal.
Specifying goals helps create a more realistic plan to achieve them.
SMART goals are the easiest to make, but SMAR is not entirely SMART. A person is more likely to act upon their plan to reach a goal if they have a time frame to reach it.
- “I want an A+ credit score one year from now.” – That’s a SMART goal!
- “I need to save up $5,000 for a down payment on a home within 9 months.” – Another SMART goal!
- “I need to clean every room in the house by this weekend.” – SMART!
With a specific target and timeframe, SMART goals turn into actionable plans.
Next, a budget
For some “budget” is not a helpful word. A person can call it a “spending plan”, “money map”, or anything they like so long as they have a plan for using their money that helps them meet their SMART goals.
A great way to start is to determine exactly how much is spent every month by going through the last three months of financial statements and doing calculations. What is the average per month spent on gas, groceries, electricity, and other utilities? Add those averages to fixed expenses like car payments and rent or mortgage payments, and then a person can clearly see how much money goes out, versus how much comes in and how they spend their money. For many, this act of self-monitoring is enough to cause a positive change in spending behavior. Once there’s a clear idea for how income is being used, a person will be able to find ways to make adjustments that they can live with to help them save more and spend less.
Finally (and ultimately), a reliable source of financial information
They should be comfortable shopping for loan rates, and how to do so. What’s the difference between APR and APY? What’s the difference between a bank and a credit union? Where do they go when they have questions about money or how money works? Hopefully, they are part of a trusted financial institution they can contact with financial questions. Whether it’s their favorite associate at a local credit union or a well-known website like Investopedia.com, it is important to have a reliable resource to answer financial questions. Becoming comfortable with asking questions and finding information increases the likelihood that a person will discover a more efficient way (and more encouragement) to accomplish their SMART goals.
Blog written by Colten Hibbs, Financial Educator and Staff Writer for Education Credit Union
