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Financial Literacy Month — Six Steps to Improve Your Personal Finances

April has been designated Financial Literacy Month — a time for all Americans to reflect on their personal finances and ways they can improve personal financial management. With this in mind, here are 6 steps you can take to improve your personal finances this month:

1. Assess the current state of your finances. You need to figure out where you are now financially before you can determine where you want to go. So plan to spend some time going over every aspect of your personal finances with a fine-tooth comb. For example:

  • What is your household income now compared to last year, three years ago and five years ago?
  • How does your monthly income compare with your expenses — are they in balance?
  • How much are you carrying in credit card and other personal debt?
  • Do you have an emergency savings account?
  • How much are you contributing each year to retirement accounts?

2. Get your finances organized. If your financial filing system consists of random envelopes and file folders scattered haphazardly in your bedroom or home office, you’ve got some organizing to do. Commit to spending a few hours — or even a day or weekend, if that’s what it takes — to organize your personal finances.

It doesn’t matter what type of system you set up, whether it’s paper, electronic or a combination of both. The most important thing is that the system works for you and it’s easy for you to keep everything organized going forward.

3. Obtain a copy of your credit report. This is critical in order to stay on top of your credit rating and make sure no errors have been reported that could impact your ability to obtain credit. You can obtain a free copy of your credit report every year from each of the three major credit reporting bureaus (Experian, Equifax and Transunion) by visiting

Review your credit reports carefully in search of any possible errors that could reveal potentially fraudulent activity. If you spot any errors, alert the credit reporting bureau immediately to have them fixed and your credit score adjusted.

4. Calculate your personal net worth. This is a simple financial exercise that you should perform on a periodic basis, such as once a year. To determine your personal net worth, simply subtract everything you owe to creditors from everything your currently own. For example, if you own a home currently worth $750,000 and have a mortgage balance of $300,000, you have $450,000 in home equity that counts toward your net worth.

Now let’s say you have investment assets totaling $800,000, liquid cash totaling $200,000 and outstanding consumer debt totaling $100,000 in the form of credit cards, car loans and a home equity loan. Your personal net worth (not counting possessions like cars, furniture, electronics, jewelry etc.) would be:

$450,000 home equity + $1,000,000 investments/cash – $100,000 outstanding debt = $1,350,000

5. Get a handle on your debt — and deal with it. Excessive debt can be a major obstacle to improving your personal finances. The first step to dealing with debt is figuring out how much money you owe to which creditors and the rate of interest you’re paying on each loan. Then you can devise a plan to eliminate your debt once and for all.

Concentrate on high-interest-rate debt first, like credit cards. If you carry outstanding balances on multiple cards, pay down the smallest balances first so you cross these off your list and move on to the next one. Once you’ve paid off all your credit card debt, then move on to other types of consumer debt like car loans and home equity loans.

6. Plan for the unexpected. Unanticipated large expenses like major home or car repairs can derail carefully laid financial plans. If not planned for in advance, they can necessitate the use of high-interest credit cards, which can start a debt spiral that’s difficult to recover from.

The best way to avoid this scenario is to create an emergency savings fund that contains between three and six months of living expenses. The money should be kept in a liquid savings or money market account so you can access it quickly and easily without penalty if you need it to pay for an unexpected major expense.

In our next article, we’ll share some more steps for improving your personal finances during Financial Literacy Month.

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