As we enter the warm, playful days of summer, it may be difficult to turn our attention to the cold reality of personal finance. Yet as any financial expert will say, to continue enjoying our lives to the fullest, it is essential to plan for our financial futures.
Unfortunately, many Americans find themselves in a position of working hard, yet having very little in savings and retirement funds. As a nation, we have learned how to make money, but due to a lack of financial literacy and education, our track record of keeping and growing that money isn't as strong.
A recent study featured in The Wall Street Journal highlighted two major consequences of this knowledge gap:
- According to the Employee Benefit Research Institute, 57% percent of U.S. workers surveyed reported less than25,000 in total household savings and investments excluding their homes. In 2008, only 49% reported such low savings.
- The survey also found that 28% of Americans have no confidence they will have enough money to retire comfortably -- the highest level in the study's 23-year history.
One key factor is competing financial priorities. In our modern financial world with its myriad choices it's hard to know which to focus on first. Do we prioritize saving, investing or debt reduction?
The National Endowment for Financial Education and the Financial Planning Association co-created a nifty online tool that I really like called Financial Four. Its goal is to help you identify the financial areas that are most important for your specific circumstances.
As part of the launch, they asked financial advisors what they thought a typical individual's top four financial priorities should be. Here are their answers:
- Live Within Your Means. By nearly 2-to-1, this was the top choice among financial planners and advisors. Spending less than you earn and living within your income allowance is the best way to ensure you meet your financial goals.
- Protect Yourself with Adequate Insurance. Ensure your financial security by having adequate insurance coverage in place for health, disability, long-term care, auto, homeowners' and renters' to protect yourself and your assets.
- Tackle Debt. If you are burdened with a lot of debt, now is the time to honestly assess how much you owe and establish a payoff plan. Immediately stop running up new charges, cut expenses, and prioritize your debt by paying off the highest interest rate accounts first, then applying extra money to the next account when paid off.
- Build an Emergency Savings Account. Prepare for the unexpected by having this important reserve. Keep this account separate from your other savings and aim for three to six months of living expenses. Starting with a small reasonable goal -- as little as $500 -- will help you springboard toward building your emergency savings.
This post originally appeared at MoneyZen.com. For more MoneyZen in your life, follow Manisha on Twitter at @ManishaThakor, on Facebook at /ManishaThakor, or sign up to receive Manisha's MoneyZen blog via email by clicking here.