4 Budget Tricks That Earn You $5,198 a Year, According to a Financial Expert
Written by
Yaël Bizouati-Kennedy
Edited by
Nicholas Morine
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Americans could gain thousands of dollars by improving financial literacy, according to a new Allianz study. The study found that low financial literacy costs the average household in the United States around $5,198 every year.
The study also found that fewer Americans have high or average financial literacy as compared to other countries: 32% of Americans have “low financial literacy,” 58% are classed as “average” and just 10% demonstrated high financial literacy. In contrast, in Australia, 17% demonstrated high financial literacy, while that figure stands at 16% in Spain and the U.K.
There is also a notable gender gap in the U.S. About 38% of women, compared to 26% of men, are classed as having low financial literacy. And younger Americans demonstrated less financial knowledge as well, with 21% of baby boomers demonstrating high financial literacy as compared to 11% of millennials and 6% of zoomers.
All of this translates into Americans worrying that they don’t know enough about investing, with 66% saying they know less than the average investor about financial markets and investing, the study found.
But there are steps investors can take to bridge that gap.
Just Get Started With the Basics
According to Kelly LaVigne, VP of consumer insights at Allianz Life — it’s best to just “get started.”
“Seek out financial advice. While it is best to work with a financial advisor, there are many reputable online sites that offer a solid, basic financial education on a variety of important topics,” said LaVigne. “No one is asking for you to become an expert day trader! As a matter of fact we discourage it.”
Most importantly, he said, create a realistic budget and save in a retirement plan — even a little bit will be a huge help. In addition, familiarize yourself with basic investing knowledge such as compounding effects of interest, he added.
“Also understand your risks and how to protect yourself from the unexpected via insurance. And, of course, learn about the best use of credit. Avoid living on credit, pay off your high interest debts and you will be amazed at how much more quickly you’ll be able to save and, as an added benefit, relieve some stress. Keeping your spending within your budget will add thousands over time,” he added.
While that first step can admittedly be intimidating, with even some knowledge, you will find your confidence increasing. This will help you make the right moves to create a better future, he said.
Learn How To Budget More Effectively
Balancing a budget is really hard no matter how much income you have. However, there are several ways to (somewhat) painlessly pull money from the spending category into the savings and investments categories, said Bobbi Rebell (CFP). Rebell, founder of Financial Wellness Strategies and an established finance author, said one way to tackle a big goal is to break it into small parts.
“If you do the math on $5,198, that works out to $433 a month. It also works out to $100 a week. On a daily basis it is just $14,” she said. “So if you can, ask yourself if you can put that amount on autopilot to be transferred to your investment account each week. If your budget is too tight, go through your spending and see if you can cut something.”
This might include downgrading your streaming services to a less expensive level (despite the ads), or cutting down on eating out.
“The bottom line: put yourself and your future first even if it means some tough-at-first changes. Odds are you can re-instate anything you give up once you start earning more,” she said.
Make Intentional Investment Decisions
According to Rebell, another key component is having the financial literacy skills to make deliberate and intentional investment decisions with that saved money. Make sure it is automatically transferred and then also invested.
“Many well-intentioned folks put money into a brokerage account and leave it there. Take the time to educate yourself on the best investment based on your goals and risk tolerance,” she added. “Financial literacy does play a huge role in how we manage our money — without being able to follow the criteria we don’t understand, or managing credit cards without knowing about interest rates, we put ourselves at a huge money disadvantage.”
Have Confidence and Stamina When Investing
According to Patricia Pelayo Romero — Allianz senior economist for insurance and ESG, and one of the study’s authors — more fundamentally speaking, two ingredients are inevitable to become a better investor: confidence and stamina.
“Confidence is absolutely decisive in overcoming financial inactivity and taking decisions,” she said. “In all countries, we see that respondents with low financial literacy opt more often for the answer ‘I don’t know’ than other respondents. But if you think you don’t understand finance you very likely will do nothing with your savings — the first and biggest mistake in investing. Therefore, a successful financial literacy intervention should start with confidence building.”
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