It's Financial Capability Month, a time to highlight the importance of financial education and financial literacy. NeighborWorks America's network organizations are well aware of the importance of that education on subjects like building good credit, establishing savings, and working out a budget. They share their expertise on those subjects every day, through free financial coaching or free-to-low cost financial capability courses.
Kenneth Brown, outreach manager and HUD-certified housing counselor at Homewise's Santa Fe Homeownership Center, is one of the NeighborWorks networks' experts. The advice he often gives to the people he meets through Homewise is seemingly simple. "Have a plan," he says.
During the pandemic, plans changed for many families as COVID-19 upended the economy and caused lost jobs and wages. Last April, unemployment reached levels higher than during the Great Recession, especially in the service industry. Families and individuals faced extreme hardships, and for some, recovery is just beginning or hasn't yet started. Others reported having better years, keeping their jobs and seeing the addition of government stimulus checks. Each situation is different; each plan for managing finances and budgets is different, too, Brown says.
Some people think of budgeting in the most general terms – like knowing what day your next paycheck will arrive. Brown's definition? "It's a spending and savings plan," he says. "It's where I want to spend my money and what I'm saving for."
As we head into spring, and as the economic effects of the pandemic start to clear, it's time to take a close look at your financial plan. Brown likes to start by urging clients to make a list of their top three core values, and then see how their financial goals tie in with those values.
"There's very little in life that doesn't cost money," he says. "Do you want to go to college? Send your kids to college? Go on vacation? Buy a house? That's what's important to start with first: define your savings goals."
With the pandemic, he says, many families realized the importance of saving for financial emergencies. "So many of us had friends and family out of work, who had no savings," he says. Rebuilding can be hard if you're living paycheck to paycheck or paying down debt. But you can start small, Brown says. "When you start running, you don't begin with the Boston Marathon," he says. "You start with a walk around the block."
NeighborWorks America teaches that financial capability means setting goals – and building toward them. "We all have big dreams about where we want to be in five or 10 years," says Molly Barackman-Eder, senior financial capability manager at NeighborWorks America. "A budget helps you break the big goal down into month-by-month, week-by-week steps." When you run the numbers, she says, you might discover you need to make some changes if you're going to meet those goals.
Brown offers this advice for individuals as they put together a plan that's right for them:
Track your expenses: "This is something you should do for 30 days, for 60 days and for 90 days," Brown says. People are always surprised by how much they spend on certain items, he says. "You have to know how much you have coming in and how much you have going out."
Set limits: You can still allow room in your budget for things that bring you joy, he says, just limit it. Set boundaries by using a gift card or an app for items like Starbucks, he says. When the money on the card is gone, that's it until next month. Putting a child's allowance on gift cards is another way to teach financial capability and limits.
Save: The need for savings – especially emergency savings – is especially clear after this year, Brown says. He recommends having enough money in reserves to cover three to six months' worth of basic expenses but acknowledges how difficult it can be to reach that amount, especially if you've gone through all of your savings during COVID-19. "People have been struggling," he says. "But most people I've spoken to took it as a wakeup call. They said, 'I don't want this to happen to me again.'"
Start: "Most people are hesitant about budgeting," Brown says, noting that people are also hesitant to even talk about money. But if you're looking at methods on how to start a spending plan – taking a class or even reading an article – that indicates that somewhere inside, you know it's time to do something. The real work starts after a financial fitness class or after reading an article. The goal, says Brown, is to get started. "You find someone who inspires you and you say: ‘I can do that.'" If you have a job, ask that some amount of money be deposited directly into savings, even if it's just five dollars per paycheck. "You have to start wherever you are and however you can."
Make a goal: "Learn. Gather some tools. And then make a goal for yourself," Brown says. "What's important to you?"
Write it out: Listing everything can be overwhelming, Brown admits, but once you see your goals on paper, you can decide which is most important and actionable. "Think to yourself: what's my priority for the next six months?"
At Homewise, 3,000 people a year work toward financial wellbeing through one-on-one coaching and attending classes on homebuyer education, financial fitness, and post-purchase finances. Students range in age from 18 to 75, Brown says, adding: Financial education is something everybody needs.
As NeighborWorks has long known, financial education leads to homeownership, sustaining homes, and building wealth. NeighborWorks organizations across the country stand ready to help individuals learn.
Use NeighborWorks America's network directory to connect with a financial capability counselor near you.