Not only is April tax-filing season, but it’s also Financial Literacy Month. Most Americans are clueless about issues such as credit management, taxes, banking, and saving and investing for the future, reports FinancialLiteracyQuiz.com. In addition to not knowing enough about saving and investing, too many people aren’t doing enough to prepare for their financial future.
According to the 10th annual Ariel-Schwab Black Investor Survey, African Americans continue to save far less money than white people and are no more likely to be investors today than they were a decade ago. The 2007 survey of African Americans and white people earning at least $50,000 annually also showed that the median amount of money saved by black people is $48,000 compared with $100,000 for white people. On a monthly basis, median savings is $182 for black people versus $261 for white people.
Also, 40% of consumers live beyond their means, and half are living paycheck to paycheck. If this sounds like you, putting aside extra cash for a rainy day may seem impossible, especially when funds are tight and you’re on a fixed income.
But given the current economic slowdown, it’s an ideal time to take the cost-cutting measures necessary to achieve financial security. “The key to saving money with limited funds is training your mind to know how much money you are working with and making a conscious decision to stay within that framework of available cash,” says Gil Michel, president and founder of BlackMoneyMatters.com, a personal finance Website geared to the African American online community. “Unless you change your mindset, the spending habits that you form based on say, a $25,000 salary will be the same even if you were to make $100,000.” Michel adds.
An effective savings plan takes discipline to reach specific financial goals. Regardless of your income, here are five steps to help eliminate debt and to start saving:
- Create a budget. Neglecting to keep track of your day-to-day finances is a challenge that can lead to unintentional overspending. A budget will show exactly how much money is coming in, how much money is going out, and where it’s going. Set limits on the amount of money you spend each month and make small adjustments in areas where money can be freed—such as café lattes and junk food. Also, Black Enterprise‘s Wealth Building Guide offers some ideas on how you can grow your income to save more. (See the “Wealth Building”portion of BlackEnterprise.com for more information.) You want to put aside at least 10% of your after-tax income to use towards an emergency fund, investments and education.
- Invest in your company’s 401(k) plan. If you aren’t investing in your company’s employer-sponsored retirement plan, then don’t procrastinate any longer. A 401(k) is an effortless savings tool (it automatically comes out of your paycheck) that can provide significant income for retirement. If your employer even matches a portion of your contributions, it is allowing more money to work for you faster. If you’re