Strategies to manage your personal financial risk

April is National Financial Literacy Month, but any time of year is a good time to discuss finances. Learn how to help improve your financial literacy and increase your savings with these tips and strategies.

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Types of financial strategies

It’s sometimes daunting just thinking about managing money. So, what can we do to start planning a more secure future? There are several proven, practical steps that almost anyone can take to start putting personal finances in order:

Establish an emergency fund.

It’s important to save at least six to eight months of living expenses and keep it someplace safe and accessible. If you’re having trouble getting started, you can automate the process by having your bank transfer money on a regular basis from your checking account to your savings account. In most cases, there's no cost for this service, and you can start with as little as $25 a month.

Protect your most important asset.

Since your income potential is probably your greatest asset, be sure to protect it with life, health, and, possibly, disability insurance. That way, if something unfortunate happens during your prime earning years, you or your loved ones will be financially protected.

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Accept an employer’s 401(k) match.

If your employer offers a 401(k) match, be sure to contribute at least enough to qualify for the full match. Typically, companies will match anywhere from 1% to 6% of employee contributions, which is money for the taking. Best of all, any money you contribute will be deducted pretax from your paycheck. You may also be able to build in automatic increases, so the percentage you contribute goes up every time you get a raise.

Prioritize and eliminate debt.

Contrary to popular belief, there’s really no such thing as good debt. There’s only bad debt, and not-quite-so-bad debt. That's why it’s important to look at any debt you have, such as credit cards, car loans, mortgages, and student loans, and eliminate those with the least favorable terms. Credit cards are often a good place to start, since the interest rates they charge can range anywhere from 10% to 24%. Plus, unlike the interest on home mortgages, the interest on credit cards is not tax deductible.

Take advantage of tax efficient tools.

Better management of your financial strategies is one of the easiest and most effective ways to improve your financial health. Also, there are a host of tools out there that you can use to manage your tax burden and help you prepare for upcoming milestone events.

For example, if you want to save for retirement, you can investigate IRAs (traditional or Roth), 401(k)s, and tax-deferred annuities. For those interested in helping a loved one pay for college, 529 college savings plans can be an excellent option, or you may want to consider a whole life insurance policy to protect your loved ones if an unforeseen happens. The cash value within the policy accumulates tax deferred and can be accessed during your lifetime, generally income-tax free.¹