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Investor Alert

Take Control of Your Financial Future: Tips to Think About at Tax Time and Beyond

During tax filing season, many of us spend a great deal of time focusing on our finances—and we are not always happy with what we see. According to the FINRA Investor Education Foundation’s State-by-State Financial Capability Survey, only one in six (16 percent) reported being satisfied with their current financial condition.

The survey closely examined how Americans save, borrow, plan for the future and make financial decisions. It also measured financial literacy, including facility with numbers. Across each of these five dimensions, survey findings underscored the need for all Americans to take greater charge of their financial well-being.

No matter the season, now is the time to take stock of your finances. Here are some tips you can use:

  1. Get a Grip on Saving Versus Spending. Individuals who are not balancing monthly income and expenses may find themselves struggling to make ends meet.
    • Track your monthly spending. Sixty-one percent of survey respondents reported facing difficulties covering monthly expenses and paying bills. And household expenses have been greater than income for one in five Americans (20 percent). FINRA offers resources to help you calculate monthly cash flows.
    • Avoid overdrawing accounts. Over one-quarter (26 percent) of survey respondents with checking accounts reported overdrawing their accounts on occasion. While overdraft protection may seem like a helpful feature on a checking account or debit card, overdraft fees can add up. To protect yourself, balance your checkbook regularly, and opt out of programs that automatically approve ATM and debit card transactions. For more on how to avoid overdraft fees, read the Federal Reserve’s New Overdraft Rules for Debit Cards and ATMs.
  1. Dial Back Your Debt. Sound borrowing practices and management of financial products are crucial to financial capability.
    • Handle credit cards wisely. More than two in three (73 percent) of survey respondents reported having credit cards. Of these, most (56 percent) carried a balance and paid interest each month—and as many as 40 percent reported paying only the minimum due. Try always to pay your credit cards in full—and, if you cannot, at least pay more than the minimum due. Every dollar you pay above the minimum payment can dramatically reduce the amount of interest you will pay. Learn more about how to deal with credit card debt.
    • Avoid the Money Drains. In the state-by-state survey, almost one in four Americans (24 percent), reported using alternative forms of borrowing, such as auto title or payday loans, advances on tax refunds, pawn shops or rent-to-own plans. These borrowing methods are likely to charge higher interest rates than those charged by banks, credit unions or credit card companies—and they are used disproportionately by the unbanked. To get started with a federally insured account, read FINRA’s Bank Products.
  1. Plan for Known—and Unknown—Expenses. Being able to weather unexpected financial shocks not only contributes to your own financial stability but helps the stability of the economy as a whole.
    • Start an emergency fund. The state-by-state survey found that only 35 percent of American adults have set aside sufficient emergency savings to cover expenses for three months in the case of sickness, job loss, economic downturn or other emergency. To get started, aim to set aside at least one month (and preferably three to six months) of your current salary in a federally insured savings account—and don’t touch it unless absolutely necessary. Learn more about creating an emergency fund.
    • Take advantage of tax breaks for college savings. While funding a child’s college education is one of the more predictable expenses many families face, the state-by-state survey found that less than one-third (only 31 percent) of respondents with financially dependent children have money set aside for college. Of those who are saving for college, only 31 percent reported having used a tax-advantaged savings account, such as a 529 Plan or Coverdell Education Savings Account. Learn more about smart strategies for saving for college.
    • Contribute to a retirement plan. Contributing to a retirement plan, like a 401(k) or IRA, can mean the difference between a financially secure retirement and the specter of running out of money. These plans offer tax benefits and the opportunity for your savings to compound over time. If you have a 401(k) plan at work, sign up today and start to save. For more information on saving for retirement, read FINRA’s 401(k) Investing.
  1. Look Around—and Look Out—Before Making Financial Decisions. Taking time to ask questions about and to compare the terms, costs and risks of the financial products and services you use is one of the best ways to protect against costly mistakes.
    • Shop around for financial products. When it comes to choosing financial products—such as credit cards, auto loans or mortgages—most Americans either do not comparison-shop or conduct only limited searches for the best prices or terms. For example, 62 percent of survey respondents said they did not compare credit card offers. Whether for credit cards, loans or investments, comparing costs and terms can save you money.
    • Guard your wealth. According to the survey, only 14 percent of those who have worked with a financial professional reported that they had checked the professional’s background or credentials with a state or federal regulator. Investing a few minutes of your time to take this essential step up front could save you time, money and other trouble down the road. FINRA BrokerCheck is a free tool that allows investors to check the professional background of brokerage firms and individual brokers, and investment adviser firms and representatives. Learn more about checking out investment professionals.
  1. Know Yourself and Resolve to Keep Learning. Financial literacy strongly correlates with behavior that is indicative of financial capability, including planning for retirement, having emergency savings and minimizing credit card fees.
    • Check your credit report and score. You need to do both. Only 42 percent of survey respondents stated that they had obtained a copy of their credit report and only 41 percent had checked their credit score within the past 12 months. With credit hard to obtain and identity theft a continuing problem, it is critical to verify whether your credit history is accurate and correct any discrepancies immediately. Learn more about how your credit score affects you and what helps and hurts your credit score. For your free credit report, call (877) 322-8228 or visit
    • Learn more about saving and investing. On average, individuals answered 3.0 out of five financial literacy questions correctly—and among those aged 18 to 34 year old, the results were grim: only 2.6 correct questions on average. FINRA has tools and resources to help investors of any age and circumstance get on the right track. Visit the FINRA Investor website today.

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