April is just 72 hours away and it’s one of our favorite months of the year. That’s because April is Financial Literacy Month. This event began some two decades ago to raise awareness about the critical need for financial literacy. It’s just as important as learning to read and write. We’ll talk about that on Faith and Finance. <ul><li>It’s not quite April yet, but we want to give you a head start on gaining financial literacy. It’s important, because if you don’t know how to set up a budget, handle credit cards responsibly, or figure out how much car or house you can afford— you’ll run into all sorts of trouble.</li><li>And guess what? Financial literacy is just another way of knowing and following God’s financial principles for earning and saving money.</li><li>Now, <a href="https://www.wsj.com/articles/the-6-concepts-you-should-know-to-be-financially-literate-11628251202">a recent article</a> in the Wall Street Journal laid out six practical things you need to know to be financially literate, so let’s go over them one by one.</li><li>6 THINGS YOU MUST KNOW</li><li>1. The power of compound interest and how it works and that it can work for you, or against you. When you save, your interest is “compounded.” That means at some point, it’s added to your principal, making it larger. You’re then paid more interest on your larger balance, and so on. The earlier you start saving, the more time your balance has to grow at an ever-accelerating rate.</li><li>Here’s an example: Let’s say you’re 20 and you invest $5,000 a year for 10 years, and then stop. Over the next 30 years, at an annual return of 7%, your balance will be $600,000.</li><li>But if you wait until age 30 to start, and invest the same $5,000 a year for the next 30 years, do you think you’ll have more? Nope. Your balance will only be $540,000. So the earlier you start, the better off you’ll be.</li><li>By the way, we said compound interest can work against you, too. If you use a credit card and don’t pay it off each month, the interest is added to your balance, meaning you’ll owe even more.</li><li>2. So-called “good debt.” This is debt you take on with a reasonable expectation that the return you’ll get will be more than what you have to pay in principal and interest.</li><li>Some examples would be borrowing to start a business, if you expect that your revenues for the business will be enough to cover the loan and give you enough to live on.</li><li>Buying a house would fall into the category of good debt, because in most years, homes appreciate in value. A student loan, also, because if you finish with a degree that gives you marketable skills, you can reasonably expect to earn more than the loan will cost you, but be careful to borrow as little as possible for education. Far better to save for it ahead of time, again using compound interest in your favor, like with a 529 education savings plan.</li><li>On the “outside edge” of good debt could be a car loan, if you need it for transportation to a job. But make as big a downpayment as possible and continue to save when the loan is paid off so you can eventually buy a car with “all cash.”</li><li>3. Credit utilization rate. That’s how much credit you have versus what you owe, as spelled out in your credit report, which affects your credit score. You should never owe more than 30% of your available credit because it will lower your score, resulting in having to pay a higher interest rate if you need another loan.</li><li>4. “Pay yourself first.” This simply means that you should put something into savings each pay period before you spend any money. Set up an automatic transfer from your checking account into savings, and let the bank do the work for you.</li><li>5. Diversification. This is another of God’s financial principles. Ecclesiastes 11:2 says, “Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” It means to divide your investments among different stocks, mutual funds, bonds and other securities. Don’t put all of your eggs in one basket.</li><li>You can also diversify your assets for tax purposes. For example, contribute to your employer’s 401k or 403b with pre-tax money, but also open a Roth IRA and invest after-tax money in it. It’s great to have something in each bucket if you can do it.</li><li>6. Liquidity. All that means is that you can get to your money when you need it. If that sounds like an emergency fund, you’re exactly right. Your retirement accounts and even CDs and money markets are not the place to keep funds that you may need at a moment’s notice.</li><li>Keep at least 3 to 6 months of living expenses in a savings account at an online bank to get the best interest possible on your liquid funds. If you have an unforeseen medical condition, lose your job, or total the car, you can get to that money in a hurry.</li></ul>On this program, Rob also answers listener questions: <ul><li>Is it wise to use an accelerated mortgage payoff system?</li><li>How do you determine when it is wise to sell multiple properties that you own?</li><li>Will receiving pension payments affect your Social Security income?</li></ul>Remember, you can call in to ask your questions most days at (800) 525-7000. Also, visit our website at <a href="https://www.faithfi.com/">FaithFi.com</a> where you can join the FaithFi Community, <a href="https://faithfi.netviewshop.com/donate2">and give </a>as we expand our outreach.

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Faith & Finance is a daily radio ministry hosted by Rob West. The program offers a practical, biblical and good-natured approach to managing your time, talents and resources.

Faith & Finance with Rob West

April is just 72 hours away and it’s one of our favorite months of the year. That’s because April is Financial Literacy Month. This event began some two decades ago to raise awareness about the critical need for financial literacy. It’s just as important as learning to read and write. We’ll talk about that on Faith and Finance.

Six Lessons for Financial Literacy

FaithFi: Faith & Finance | Mar 29, 2023

Show Notes

Where Faith Meets Finance

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