MP spoke with Annette Harris, certified financial fitness coach and noteworthy human resources leader for over 14 years. Harris is a U.S. Army veteran and the founder of Harris Financial Coaching. Harris can also be credited with volunteering with local and national nonprofit organizations that support the community through financial literacy education.
Personal Finance Generally
What is financial literacy, why do so many people struggle with it, and how can we become more financially literate?
Financial literacy is understanding how to manage your money. Whether budgeting your income and expenses or managing your spending or emotions around money, it all ties in with financial literacy.
Many people do not understand how their feelings or past affect how they spend or manage their money.
Without this knowledge, it can create an endless cycle of money mismanagement.
Therefore, the first step in becoming more financially literate is taking an inventory of your family’s money history from childhood, which has brought you to where you are today.
Then you can create a path to move you toward healthy financial management.
How can we manage our money more confidently, and what would this look like in practice?
Money can be managed more confidently by realizing that you have goals that you want to achieve and committing to making the necessary changes to accomplish your goals.
Money confidence occurs when you begin envisioning what you want your future life to be.
It also comes with acknowledging your past money mistakes and committing to moving forward.
Moving forward requires writing down your goals and creating an actionable plan that can help you begin taking action one step at a time.
Budgeting and Saving
What strategies should we use to save more, and why might these be the most effective?
Setting SMART Goals
Setting goals is one strategy you should use to save more.
Setting measurable goals using the SMART method can help you achieve attainable and realistic goals. The SMART method requires that you set goals that are specific, measurable, attainable, realistic, and time-bound.
This method is effective because it helps to encourage you to set goals that you know that you can achieve and that align with what you are realistically able to achieve financially.
An example would be that you want to save $100 per month to buy a new bed by December.
Writing it down allows you to visualize this goal and provide a method to achieve it.
Talking About Your Goals
Talking about your goals to someone you trust can help you accomplish them if you're single or in a relationship.
If you’re single, have a trusted individual hold you accountable for your goals. When you verbalize your goals and have an accountability partner, it can help keep you on track.
If you’re married, talking to your partner about your savings goals can help ensure you manage your finances appropriately.
If you’re not on the same page with your partner about your savings goals, it can be a constant struggle that can make them harder to achieve.
What should we look for in a bank account, how might this change based on our financial situation, and why?
When looking for a bank, you should find one that aligns with your financial goals, has minimal fees, and allows you to access it online or in person.
If you are looking for a bank account that allows you to save and invest your income, ensure that it provides various products that you can choose from.
When evaluating fees, you want to ensure that you aren’t charged for not having the required minimum balance.
For example, if it requires a minimum balance of $300 and you aren’t able to maintain that balance, then you may find yourself in a difficult financial situation.
Finally, ensuring you can access your money when you want to should also be considered.
These three things can change based on your financial situation. As your income increases or decreases, you may need to look for different features, such as not having easy access to your money or investment services. One reason you may not want to access your money easily is that you want it to provide a return, and viewing your money constantly, like investments, for instance, could cause you to make rash financial decisions.
What steps should we take to reduce our current debts, and why?
The first step to reducing your current debt is to consider all of your outstanding debt.
Writing down your debts can help you paint an accurate picture of where you are financially and help you create a plan to tackle your debt. This inventory should include your total amount owed, current monthly payments, and interest rates.
Next, you want to identify how you want to reduce your debt.
There are a few options.
You can first pay off your debt with the highest interest rate, the shortest term, or the lowest balance. There are cost savings associated with each method, and your current balance owed will help you determine what that is.
Finally, once you tackle that first debt, use those funds to apply towards your next debt. It was money you were paying towards debt in the first place, so adding it to another debt payment can help you “power pay” down your other outstanding debt even faster.
And you want to continue this cycle until your debt is at a manageable level or even eliminated.
What are three commonly made debt reduction mistakes, and how can these mistakes be avoided?
1. Paying Down Your Lowest Balance First
Evaluate your interest rates to determine what the best method would be going forward to reduce your debt.
If your lowest balance has a minimal to no interest rate, consider paying down debt with a high-interest rate.
2. Consolidating Debt
Take an inventory of your debt and determine if consolidating debt will cause you to pay more in interest than you are paying for your accounts.
3. Saving or Spending Money from Paid off Debts
When you complete the payment cycle for one debt in particular, “power pay” down your debt by adding those funds to your other outstanding debt with a high-interest rate.
What are smart places to park cash, and why?
Some smart places to park cash are in credit unions and retirement accounts.
Credit unions provide a higher interest rate return than regular savings accounts; if you’re looking to save money and don’t want to risk losing your money in the stock market, retirement funds are also a great way to invest your hard-earned income.
Now, there are risks because retirement funds consist of stocks, so correctly diversifying your portfolio and talking to a trusted financial advisor can help mitigate some risks. Investing in employer pre-tax retirement accounts can also reduce your current taxable income and provide a resource to fall back on if you face financial hardship.
You receive an additional bonus if your employer provides a matching contribution to your retirement as a source of free money for your retirement future.
What types of insurance should we consider being covered by, and why?
You should consider three main types of insurance: health, life, and auto.
Unexpected events tend to occur when you least expect them, and not being protected by insurance can send you into financial ruin if you don’t have the financial resources to help stave off the costs.
Health insurance is one of the most important types because you never know when an ailment or injury can occur.
A doctor’s visit for lab work could cost about $300; with health insurance, your copay could be $30 instead of the total cost.
Some may say that the monthly premium is too expensive.
However, depending on the lab work results, it could cost you thousands more, and without insurance, you would be responsible for the cost or have to forgo getting the medical help you need.
Then you have life insurance for any loved ones that you leave behind in the event of death.
Life insurance can help cover any remaining debts, such as a mortgage.
It can also be used to fund your children’s college education or be a financial resource for the loss of income.
Life insurance is a safety net for those who may not be able to survive financially, especially if you are a substantial income provider for your family. For some, it can also be left as a gift to get them through tough times or to support them financially.
Like health insurance, auto insurance is also necessary.
There are many uninsured motorists on the road. If you get into a car accident without insurance, you would be responsible for the cost of repairs or the total replacement of your vehicle.
If you don’t have this money set aside, you may have to go without transportation or find yourself deeper in debt than you wanted.
Not to mention that depending on the severity of the car accident, you could have mounting medical bills that insurance, both health and auto, would typically cover.
Is there anything else you would like to share?
If you aren’t sure where to start, reach out to a financial coach, certified financial planner, or someone in your circle of trust who can help you begin your journey to financial independence.
Achieving your goals starts with taking it one step at a time.
Responses provided by Annette Harris, certified financial fitness coach and founder of Harris Financial Coaching.
Questions based in part on topics and comments provided by:
- Jen Hemphill, Accredited Financial Counselor at Association for Financial Counseling and Planning Education (AFCPE®)
- Herman Thompson, Jr., CFP®, ChFC®, Certified Financial Planner® at Innovative Financial Group
- Leslie H. Tayne, Esq, Financial Attorney and Founder/Managing Director at Tayne Law Group
- Linda Hamilton, Executive Vice President and Chief Operating Officer at Iroquois Federal
- Ann-Marie Anderson, Financial Advisor at PHP Agency
- Paul Dilda, Head of Retail Strategy, Products and Segments at BMO Harris Bank at BMO Financial Group
- Matthew Benson, CFP® Owner and Certified Financial Planner™ at Sonmore Financial
- Josh Richner, Outreach and Marketing Coordinator at National Legal Center
- Ken Tumi, Founder at DepositAccounts.com and expert at LendingTree
- Martin A. Federici, Jr., Chief Executive Officer at MF Advisers, Inc.
- Ba Minuzzi, Founder and Chief Executive Officer at UMANA