6 Things Everyone Needs To Know About Financial Literacy

April is National Financial Literacy Month, if you’re curious what “financial literacy” actually entails, you’re not alone. Essentially, though, it’s fairly simple: financial literacy is the knowledge and understanding required to make smart choices regarding your finances. You might have learned some of these fundamental concepts at school or home — but even if you think you know how to be smart when it comes to money, it never hurts to have a refresher.

Because when you understand key financial literacy tenets like budgeting, saving for retirement, building good credit and reducing debt, you can make smarter choices for your future and long-term stability. With that said, here are six key things everyone needs to know about financial literacy, including how to make informed decisions about mortgages and homeownership when working with a lender such as New American Funding.

---

1. Creating A Budget Is Crucial

A personal or household budget accounts for your net income from your regular paycheck, along with any additional income sources, to track your spending against housing costs, utilities, food, entertainment, debt repayment and more. The budget is usually calculated on a monthly basis and reviewed often to update spending allowances to better align with your financial goals.

If it’s your first time getting serious about creating a budget, you can utilize a budget worksheet or even a piece of paper. Include every bill you pay each month with the corresponding due date and the minimum amount due. Next, include living expenses, such as rent/mortgage, utilities, cell phone and other expenses like student debt or credit cards. A realistic budget also includes allotment for entertainment. Finally, a healthy budget should include the amount of money you are looking to save each month.

---

2. A Rainy Day Or Emergency Fund Can Help Cover Unexpected Costs

Although a budget can help keep track of your spending and savings, it’s a good idea to build an emergency fund as well as a rainy day fund for unexpected costs when they arise. Those unexpected expenses that can be easily served with a rainy day fund — $2,500 or less — can range from car maintenance to home repairs. Alternatively, and for more serious emergencies, an emergency fund is often as large as six months worth of expenses for your everyday living. The emergency fund should cover things like monthly rent or mortgage payments, car loans, insurance, utilities and other essentials.

---

3. It’s Never Too Early To Save For Retirement

Many people don’t think seriously about their retirement savings until they’re approaching retirement age. The reality is that saving and planning for this chapter of your life decades beforehand is the best way to set yourself up for financial stability in your golden years.

Whether you open an individual retirement account (IRA) or participate in a 401(k) plan, putting away money early on — even in small amounts — allows your savings to grow over time as interest accumulates on your deposits. Take advantage of any company-sponsored retirement savings plans as soon as you enter the workforce and are eligible to begin contributing. Many employers offer matching contributions, and if yours does, it’s wise to maximize your own contributions to receive the maximum match.

Even if your employer doesn’t offer a retirement savings plan or matching program, you can still explore options for IRAs and begin saving on your own.

---

4. Your Credit Score Matters

A good credit score can make a big difference in life’s major financial decisions, from renting an apartment to buying a vehicle, to getting a mortgage for your first home. This three-digit number is a way for lenders to understand their level of risk if they were to lend you money: Someone with a higher credit score is typically viewed as more likely to repay their debts on time and in full than someone with a lower score.

It can take time and effort to build up a good credit score, especially if you’ve received any derogatory marks for late payments or high credit usage. However, doing so can open up your options significantly when it comes time to borrow money for a major purchase. For mortgages specifically, a better credit score often means better interest rates and greater eligibility for certain programs that may help you save money in the long run.

Based on the factors major credit bureaus use to calculate your credit score, some simple ways to improve yours include:

• Always paying your bills on time.
• Paying more than the minimum on credit card balances to reduce your overall credit usage.
• Keeping credit cards and lines of credit open (even with zero balance) to establish a positive credit history.
• Not opening new credit accounts right before you apply for a major loan (this will put a hard inquiry on your credit, which can reduce your score for a certain period of time).

---

5. Not All Debt Is Created Equal

Debt often carries a negative connotation and is viewed as a financial burden. However, different types of debt can have different impacts on your overall financial health, and not all of them are bad.

The difference between “good” versus “bad” debt comes down to the interest rate, tax deductibility and long-term value of the asset you’ve purchased. A home mortgage, for instance, is considered good debt because a well-maintained property will appreciate in value over time and can ultimately generate a profit for the homeowner if they sell or rent it. Mortgages also have lower interest rates than other types of debt, such as credit cards and vehicle loans, and can be applied as a tax deduction for the mortgage holder. The same is not true of assets like a car, which lose value quickly and can’t generally be deducted from your taxes.

The key is understanding how good and bad debt impact your financial future and striking the right balance between them. Focus on reducing high-interest “bad” debt by paying off larger amounts at a time and/or refinancing it to lower your interest rates.

---

6. Buying A Home Can Help You Build Wealth

A home is one of the biggest purchases most people will make in their lifetimes, but that investment is well worth it when you consider the long-term wealth that can come from homeownership. The longer you own your home and continue paying down your mortgage, the more home equity you build, which can ultimately be an enormous financial advantage down the line.

In simple terms, home equity is an asset you can tap into based on how much of your mortgage you’ve paid off and the market value of your property. It is calculated by subtracting the balance of your mortgage loan from your home’s current appraised value. New American Funding can help homeowners access and borrow against these funds for home improvements and major purchases through a cash-out refinance or a home equity line of credit (HELOC). You may even qualify for a reverse mortgage, which can help fund your retirement savings.

---

New American Funding Can Help You Make Informed Financial Decisions For Homeownership

For many, buying a home is a major milestone — and a significant financial investment. To help current and prospective homeowners make smart financial decisions to meet their life goals, New American Funding offers a variety of programs, including:

• NAF Cash*. NAF Cash, an affiliated company of New American Funding, will purchase your dream home upfront with a cash offer, which tends to be stronger in the eyes of sellers and could help you save on the purchase price. Then, you can purchase the home back at the original price (plus a minor convenience fee).
• 5-Year Protection Pledge. The 5-Year Protection Pledge locks in your interest rate at the time of purchase. Should interest rates drop anytime within the five years, you’ll have the option to refinance at a lower rate without any repeat fees.
• Buydown Loan. With a Buydown Loan, you can purchase a loan with a lower payment rate for the first one, two or three years of your mortgage — at no additional cost to you.

If you are interested in any of these programs and want more insights on how they fit in with your overall financial goals, a Loan Officer can help answer your questions and guide you through the application process.

With New American Funding’s breadth of programs and ongoing support for current and prospective homeowners, it’s no wonder the company has received high accolades for customer satisfaction. In 2022, New American Funding was recognized as #1 in customer satisfaction among mortgage servicers by the J.D. Power 2022 U.S. Mortgage Servicer Satisfaction Study. The company was able to achieve this prestigious recognition through its dedication to helping every client from every background achieve homeownership.

---

If you’re ready to build long-term wealth through homeownership, New American Funding is here to help make that dream a reality. Contact a Loan Officer today to get started!

---

*NAF Cash is fulfilled by NAF Cash LLC, an affiliated real estate company of New American Funding that is managed and operated in compliance with applicable legal and regulatory requirements. NAF Cash LLC does not originate loans or issue loan commitments. Terms and Conditions apply. Not available in all states. MI Real Estate Broker #6502431375. 41050 W 11 Mile Rd, Suite 220, Novi, MI, 48375. Phone 844-344-0531