- The majority of Americans lack proper financial education.
- Dasha Kennedy is an acclaimed financial activist and creator of The Broke Black Girl.
- Kennedy walked us through five things to know about money management, such as a sinking fund and payment flexibility tools.
No one is born with money management skills. And personal finance education is lacking in US schools. So most Americans are left to develop those skills through financial careers, self-education, or hard lessons learned from missteps.
Dasha Kennedy’s got all three.
With over a decade as a financial professional, Kennedy is an acclaimed financial activist and creator of The Broke Black Girl. She sat down with us to dispel major money misconceptions and walk us through five things everyone should know about their money.
1. Preparing for the unexpected is a must
An emergency fund is a critical tool for saving. But most Americans struggle to sock away funds for unexpected costs.
And, particularly over the past two years, Kennedy has identified a key psychological obstacle holding people back: The ability to accept changing life circumstances. “My biggest piece of advice is to be okay with pivoting and readjusting your finances to match what your new normal is,” she said.
Fortunately, you can kickstart your emergency fund in just minutes. And according to Kennedy, every little bit you can save helps.
2. Paying extra toward debt has a surprising impact
When it comes to managing debt, Kennedy echoes her wisdom for saving: You don’t have to make big changes to have a big impact. “Small incremental change is so vital to personal finance because it builds consistency and momentum,” she added.
Her advice? Pay more than your required minimums to tackle your debt — even if that’s only $5 or $20 a month.
Suppose, for instance, you owe $5,000 on a credit card with a 16% interest rate and a $100 minimum. By paying just $20 extra each month, you’d pay off your card 22 months sooner and save nearly $950 in interest.
“You’ll be able to free up some of your monthly income to be used for other things like saving and investing, or even something personal that you want to do,” Kennedy said.
3. You’re leaving free money on the table
Most Americans have access to an employer-sponsored retirement plan like a 401(k). But only one in three believes they’re on track with retirement savings.
Here, Kennedy highlights the power of a 401(k) plan. “It’s one of the easiest ways to streamline your retirement,” she said.
And she points to what she considers the most valuable benefit of a 401(k) — the employer match. “It’s free money given to you by your employer to match your contributions, up to a certain amount, without decreasing your salary,” Kennedy said.”That’s very important, because most retirement savings come out of your earned income.”
So if you’re not capturing your full employer match, consider boosting your 401(k) contribution rate.
4. A sinking fund is a financial secret weapon
An emergency fund is invaluable for unexpected costs. But what about the ones you know are coming, like a summer vacation or an upcoming tax bill?
That’s where a sinking fund shines. Each sinking fund holds money for a specific financial goal. The beauty of a sinking fund is that you spread out the cost upfront. “It’s breaking that total amount down and saving for that amount over a series of months, instead of taking care of that expense all at one time,” Kennedy noted.
For instance, Kennedy said, a third of Americans go into debt for holiday spending, owing an average of $1,249. But you can avoid that debt entirely by saving just $104 for 12 months before the holidays arrive.
To get started with sinking funds, consider opening a savings account for each major purchase you know is coming. Determine how much you’ll need to save, and divide that amount by the amount of time available. Set up automatic transfers to your sinking funds, and the money will be exactly where you need it when the time comes.
5. You’ve got powerful options for payment flexibility
Even with the best planning, you might want some extra payment flexibility when you need to make a big purchase. Your house needs a major repair, your car breaks down, or you get an unexpected medical bill.
Payment flexibility tools, like the American Express Pay Over Time feature give you financing flexibility while still giving you the benefits of American Express Cards, like earning rewards, and purchase and fraud protection.
As an embedded feature on American Express Green, Gold, or Platinum Cards, Pay Over Time lets you carry a balance with interest up to your Pay Over Time Limit. Pay Over Time does not affect the cardholders’ No Preset Spending Limit, meaning the spending limit is flexible. Unlike a traditional credit card with a set limit, the amount you can spend adapts based on factors such as your purchase, payment, and credit history.
Payment flexibility can mean the difference between slipping into unwanted debt and thriving financially.
“Having the flexibility to pay at your own pace can not only be life-changing, but it can be a life-saving experience,” Kennedy said.
When it comes to personal finance, Kennedy shares her biggest piece of advice for everyone: Whenever possible, spend less than you earn. “You have more room to get out of debt, to build an emergency fund, to start saving for personal goals or retirement, or even just indulge in a life that you want,” she said. “If the last two years have shown us anything, it’s that having flexibility is priceless.”
Looking for flexible financing? Get more time to pay with Pay Over Time from American Express.
This post was created by Insider Studios with American Express.