GWSB professor Annamaria Lusardi offers tips for creating a sound financial future.
Effectively managing money is essential but may sometimes seem complicated or difficult.
So Annamaria Lusardi, personal finance professor and academic director of the George Washington University’s Global Financial Literacy Excellence Center, provided GW Today with helpful tips students can follow to achieve financial stability:
- Invest in Financial Knowledge
Financial literacy—being able to create and follow a budget, knowing how much money to save and invest and understanding concepts that may affect your money such as inflation, risk diversification and interest compounding—is key to financial success.
Students should take advantage of GW’s personal finance courses and workshops.
- Set Goals
Financial health is made up of a series of small victories that require periodic assessment and adjustment, and setting short-, medium- and long-term goals can motivate students as they develop healthy personal finance habits.
The goals should be SMART—specific, measurable, achievable, realistic and time-bound.
- Budget Wisely
Budgets help students understand their financial situation more clearly and spend in line with their income. To create a budget, track your monthly cashflow through income and expense statements.
Making an effort to spend within your budget will make your savings grow consistently and keep you out of debt. Use your budget to re-evaluate your spending and curb your expenses. Switch to cheaper Internet providers. Cancel subscriptions you do not use. Swap expensive gym membership for cheaper fitness apps. Have dinner parties instead of eating out. Attend free social events.
Your budget should allow you to save a portion of your income each month.
Students should have a rainy day fund with a balance to cover two to three months’ expenses.
- Make Your Savings Grow
Because the prices of the goods we normally buy increase over time, it is important to put saving to work. Compare the interest rates offered by banks and investment apps for saving accounts. And it is never too early to start to save for your future, consider opening and contributing to a Roth IRA.
- Manage Your Bank Account
Research banking options to compare services and fees. Select the account that best suits your needs.
Look beyond introductory bonuses and evaluate a bank’s services. Be aware of any fees it may charge, including monthly fees for balances below a certain threshold and overdraft fees if an account falls below zero, which can be avoided with regular monitoring or linking a savings account to offset negative balances.
- Manage Debt Wisely
Debt repayment should be prioritized over saving and investing because the interest rate on debt is often much higher than return on most savings and investments.
Pay down debt with the highest interest rate first as that balance will grow fastest. Also, make larger monthly payments to pay the debt in less time and accrue less interest.
- Track Your Credit Score
You are entitled to a free annual credit report from each of the three major credit bureaus—Experian, Equifax and Transunion.
To maintain a good credit score, set reminders or enroll in automatic payments, do not make any late payments, avoid opening unneeded new credit or store cards, dispute false information on credit reports and keep credit balances within 30 percent of your total available credit.
- Protect Your Financial Identity
A stolen identity could have severe financial consequences. To protect your financial identity:
- Monitor your accounts and credit reports.
- Create strong online passwords.
- Be wary of giving out your entire Social Security number or personal information over the phone, email or online.
- Shred sensitive information before throwing it away.
- Use public Wi-Fi carefully.
- Commit to Your Financial Health
Maintaining financial health takes time and attention, like your health. Stay committed to monitoring expenses monthly with a budget, control debt and get educated about personal finance. There are big payoffs, you will feel better today and be more prepared for the future.