Do you consider yourself to be financially savvy? If your answer is “no,” you’re not alone. A study by the FINRA Investment Education Foundation found that nearly two-thirds of Americans couldn’t pass a basic financial literacy test.
Although this number is bleak, there’s a silver lining: It’s never too late to boost your financial know-how. Pursuing a financial education on your own or working with a financial professional to learn more may improve your financial outlook today and for your future retirement.
In fact, Boomers who work with a financial professional are more confident in their ability to meet financial obligations than Boomers who don’t receive professional guidance of any kind.
Set a foundation for your financial literacy by learning about the 3 Circles Concept of Personal Finance. This flow chart may help you understand how to use the money you earn to fund not only your daily living expenses, but also your reserves and nest egg.
Circle 1—Readily accessible funds/liquidity:
The money you earn each month is deposited into a checking account. You use it to cover your monthly expenses, such as your mortgage and bills.
Some of the money that’s left over after your monthly expenses are paid should go into your savings and reserves. This cash can be used to cover emergency expenses, such as unexpected home repairs, or opportunities.
Circle 3—Nest Egg:
You should also be funding your nest egg, whether it’s through contributions to your IRA or purchasing mutual funds in other qualified accounts.