Budgeting with Financial Literacy

Financial literacy is the knowledge necessary to make financially responsible decisions—decisions that are important to our everyday lives. Financial literacy includes many things such as understanding how a savings account works, understanding what using a credit card means, and how to avoid and manage debt. Most people in the US, including adults, are NOT financially literate. In one government study, only 34% of people correctly answered four out of five financial questions. Banks, stores offering credit, and other businesses that offer financial products take advantage of this ignorance and use many tactics to, in effect, cheat people. Money is a key tool in our society - it buys necessities, but it also gives you greater options as to where you live, what you buy, and the healthcare that you get. Money also gives you political power - politicians listen to people who can get them re-elected, and, right or wrong, money is one way that people will judge you. Building wealth is also an important step to social justice. According to the Brookings Institute, the net worth of a typical white family in the US is $171,000, nearly ten times greater than that of a typical African American family ($17,150). This greater wealth creates differences in political power and advantages for the next generation. By being financially literate, you too can build your own wealth and provide these advantages to your future children. There is no one definition of financial health. Every single person has a different income, savings, skills, education, debt, spending, age, opportunities, investments, credit score, income stability, and more.

One key aspect of being financially literate is maintaining a budget. A budget is simply a financial plan where you estimate your income, savings, and expenses. Budgeting allows us to spend our money purposefully, and it is a lot easier to spend money than it is to make money, so we have to be very careful in how we spend our money. Without a budget, it is very easy to spend all of your money before the next payday. This type of relationship with money is very bad and will keep us from having savings, and this attitude becomes even more destructive when credit is taken into account. If you are using your credit without concern for how much money you have in the bank, you can even go into serious debt by just doing everyday tasks like grocery shopping. The first element of a budget is your income. Your income gives you a starting point to think about your various expenditures. For example, having $500 per week versus $1,000 will make for a very different budget. The next element of your budget is your known financial expenses like rent, taxes, and utilities. Then you must consider your debts––student loans, credit cards, car loans, mortgages... After the larger expenditures, you have things like groceries, entertainment, eating out, clothing, and electronics. These expenditures are very different for everyone. As you get older, you may also have many expenditures related to your future children. The last part of your budget is your savings. Despite it being listed last here, savings are essential and should not be seen as whatever is leftover. You want to define clear goals for your savings and make sure that your budget–whether weekly, monthly, etc.––will help you reach or exceed these goals.