April used to be my favorite month of the year because of the weather and the start of baseball. However, I recently learned that April is Financial Literacy Month and now it has a completely new meaning.
As the Chief Financial Officer of YES Prep, it is my job to understand the finances for our school district. Yet my education in finance started at a very young age, when I moved to Houston from San Salvador.
Learning the importance of budgeting
Coming to a new country with no resources forced my parents to learn about the importance of personal budgeting. They made sure to teach me these budgeting skills early by giving me as little money as possible for lunch and social outings. For example, when my friends all received $40 to go to the Galleria for the day, I would only get $3. Not only did I have to plan out my spending, I ended up spending more time looking for quarters underneath video game machines than actually playing games. Personally, it affected me because I had to deal with things that my friends didn’t have to worry about.
So, why is learning about personal finance important to our students and community? Learning about life skills, such as finance, is as important as anything one will learn in the classroom. In fact, financial pressures in college are a key reason for quitting school. The difference between a high school degree and a college degree is $1,000,000 over the course of a lifetime. Quitting college because of present-day financial issues seriously hurts your earnings potential for the rest of your life and can statistically cost you A MILLION DOLLARS!
Surviving mode to thriving mode
In addition to budgeting, financial literacy overall gives you the increased knowledge to move from surviving mode to thriving mode. Whether we like it or not, a lot of life’s goals and stressors are money-related. Having a simple set of financial goals and increasing one’s knowledge base can lead to lower stress and increased ability to withstand the unknowns that come with life.
When I was growing up, my family did not have health insurance and it would have been devastating if I had gotten sick or broken my leg. I cannot imagine the amount of stress my mom must have been under when she watched me play sports, not because of me always striking out or dropping balls, but because unlike other parents, she literally could not afford me getting hurt.
5 tips to get your finances in order
The good news is it’s not too late! If you don’t understand finances at a basic level right now, you are not alone; two-thirds of Americans cannot pass a basic financial literacy test and half of all Americans do not have enough money to retire when they are old. Start taking your retirement seriously and decrease your stress levels by taking these first five steps.
1. Budget – Create a detailed monthly expense budget for you and your family (how much do you spend on rent, transportation, food, utilities, fun, etc.)
2. Emergency Fund – Take your monthly detailed budget and multiply it by 3. Do you have that amount in savings? If not, start decreasing your spending on nice-to-haves and save those three months of expenses. Hold onto that balance to withstand emergencies (this isn’t for vacations or holiday gifts!).
3. Eliminate Credit Card Debt – Pay off all high interest debt like credit cards and save for three months of expenses.
4. Set Goals – Once you have your three-month emergency fund and no more credit card debt, try to save a set amount each month. Aim to save up to 25% of each dollar you earn for things like your first home, retirement, or college.
5. Invest – While you are saving, learn how to invest your savings so that your money works for you (for example, the stock market). Index funds like FNILX, VOO, SPY, and SWPPX sound intimidating but are easy to buy and easy to understand how they move up and down.
By taking these first five steps, you are on your way to financial stability. I have also included below various resources that will provide you with some additional tools and information on financial literacy which, in turn, will help you accomplish important goals and decrease your stress levels.
- Why College Matters $$$
- Financial Podcasts
- Resources for Students and Parents
- Website Recommendations
- Investing Index Funds
About the Author: Luis Mena, originally from El Salvador and raised in Houston, joined YES Prep in 2018 as the Chief Financial Officer, providing system-wide oversight of financial operations. Luis began his career at Enron and remained in the energy and infrastructure business for the first 12 years of his career until transitioning from the private sector to the nonprofit industry five years ago. Luis became the Chief Financial Officer for Amigos, an international non-profit focused on experiential education, where he was in charge of finance, nationwide chapter and flight operations, and system-wide enrollment. Luis has a Bachelor in Business Administration from the Business Honors Program at the University of Texas at Austin and an MBA from the UCLA Anderson School of Business.