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It's Financial Literacy Month: Time to Brush Up on Your Financial Skills to Improve Your Retirement Thumbnail

It's Financial Literacy Month: Time to Brush Up on Your Financial Skills to Improve Your Retirement

Did you know it's Financial Literacy Month? Financial Literacy Month is a national campaign designed to bring more financial education to children and adults.

Financial Literacy Month is the perfect time to get acquainted with financial terms and tips that you may not have heard of before.


Whether you're a financial wiz or just learning the ropes, there are many ways to improve your financial literacy. Here are four steps to get you started.

Make a Monthly Budget

One of the most important steps in ensuring financial success is creating a monthly budget. This may sound simple, but a budget is your financial strategy's foundation and it is equally, if not more important to do as you plan for a successful retirement.

Creating a monthly budget doesn't have to be complicated. Here's how to ensure you're setting yourself up for financial success:

  1. First, calculate your gross monthly income. This could include your salary, investment income, Social Security, child support/alimony, freelance work, or other income sources. Remember to calculate your net income as well, which is how much is left after taxes and other deductions.
  2. Speaking of priorities, consider your financial priorities and allocate your budget accordingly. In addition to your regular monthly expenses, you might decide to increase your general savings or earmark money toward a large purchase such as a home or car. The important point is to decide what's important and to make sure your budget reflects those values.
  3. Finally, create expense categories for where your money is spent and track each and every expense. It's important to differentiate between wants and needs. You need to pay the rent or mortgage payment, but you want a new pair of shoes or a nice dinner out. By tracking your spending, you can determine whether your budget is aligned with your priorities or if you should make adjustments to meet your goals.

Check Your Credit Score

If it's been a while since you checked your credit score, now is a great time to see where you stand. Your credit score is an important metric when considering your financial health and will play a larger role when you apply for loans, especially mortgages and car loans. If you have a higher credit score, you may qualify for lower-interest debt, which will save you money. The Federal Trade Commission provides information on how to request your free annual credit report.

Reviewing your credit report is important to ensure there aren't any mistakes or incorrect accounts assigned to you. If you notice something on your credit report that doesn't look accurate, such as a loan or credit card you don't remember opening, contact your financial institutions immediately. You can also file a dispute with the credit reporting agencies to report any false information you find.

Set Aside 3-6-12 Months of Expenses

One of the worst things you can do is to sell investments at a loss just because you need access to money in a bind.  Even worse is to sell investments at a loss plus be forced to take money out of a retirement account and pay taxes at ordinary income tax rates. Life happens! But setting aside cash or access to cash without being forced to sell investment positions at inopportune times is one of the smartest moves you can make to prepare for the "unexpected;" be it a stolen car, medical issue or even a natural disaster. If you are still working, consider setting aside 3-6 months of expenses.  If you are retired, it may be even more prudent to set aside 6-12 months of expenses you can tap into if you need it.  The following are a few ways to set aside access to funds, some traditional, some less traditional.  But they can all work:

  • Bank Accounts (Checking, Savings, Money Markets or No-Forfeiture CDs)
  • Money Market Mutual Funds
  • Zero Interest Credit Cards
  • Home Equity Line of Credit
  • Cash Value within a Life Insurance Policy
  • Equity Lending (against your non-retirement brokerage accounts)
  • 401(k) Loan (without selling assets)
  • Roth IRA (You can take contributions prior to age 59 1/2, although it is best to leave your Roth IRA assets intact for retirement)

Understand Your Investment Options

As you become more financially literate and feel comfortable talking about finances, you may consider looking into investments that are aligned with your goals. There are so many different types of investments, and working with a financial advisor can help you understand your options. You should also educate yourself on some of the most common investment types, including:

  • Stocks
  • Bonds
  • Mutual Funds
  • ETFs

Understand It's Not What You Make, But What You Keep That Matters

Perhaps the most overlooked element of saving for a day when you'll no longer be working, is the misconception that growth matters most if you haven't factored how much tax you will pay when you take the money out.  Imagine if every time you took $100 out of an ATM, you only received $60.  This could be the case when you go to withdraw your retirement assets for income, if you only think about "what" to invest in, rather than "where" to invest.  The following are all accounts that can help you start to build a tax-free basket of assets you can use in the future, in a tax advantageous manner:

  • Roth IRA
  • Back Door Roth IRA
  • Kiddie Roth IRA
  • Roth 401(k)
  • Roth 403(b)
  • Roth SEP IRA (new for 2023 as a result of SECURE Act 2.0)
  • Cash Value Life Insurance
  • 529 College Plans
  • Health Savings Accounts

Start Early (Today is Better Than Tomorrow)

Remember this phrase, "Yesterday is gone, tomorrow has not yet come, we only have today, so let us begin." There is no better time to start improving upon your financial situation than today.  No matter if you are embarking on your first job out of college or approaching retirement.  There are always steps you can take to improve upon your finances in a manner which align with your values, goals and objectives.  In some cases it may be the benefit of time, to allow your assets and income to potentially multiply from compounding growth or reinvested dividends.  In other cases, it can be the savvy use of tax rules to help benefit from tax reduction planning for and during retirement.  Remember, even in times of uncertainty there are things you can do that are within the scope of your control to help you live an even better life. Here are just a few.

  • Consider a Roth IRA Conversion
  • Update your Living Trust
  • Review and update your beneficiary forms on your IRAs, retirement accounts, annuities and life insurance policies
  • Update your health care and financial Power of Attorney documents.  
  • Make sure your now 18+ year-old adult kids have both Power of Attorneys in place when they go to college (they are now legal adults).
  • Apply for life insurance (either for protection or as a tax-efficient investment)

Don't Be Afraid to Ask Questions

Talking about finances can be intimidating, but we all must start somewhere. This Financial Literacy Month, make it a goal to learn one or two new facts about finance and contact an expert who can help. You can turn to financial advisors and financial publications to get your questions answered without feeling naive or silly. Our team, California Retirement Advisors, will help you navigate your financial situation to ensure that you are on the right path to good financial health. There's no such thing as a dumb question when it comes to becoming more financially literate and secure. Click this article here to see the ten rules to live by to achieve financial independence.

Financial literacy doesn't come from making big leaps but rather from taking one step at a time. Pick one of the options above and start yourself on the path to becoming financially savvy.

If you are not getting your questions on this topic answered by your current financial advisor and would like to discuss working with us, you may request a meeting here.

By Christian Cordoba
Founder, California Retirement Advisors

To see more of our blog articles, click here.

Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.
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