1.1 Introduction

To be financially literate means to have an understanding of the process of formulating, implementing, and monitoring decisions involving money. Just like a spoken language, obtaining a comprehensive vocabulary in finance requires time and effort. In its most basic form, money is cash flow. Individuals and businesses require cash flow to cover expenses. Non-discretionary cash flow is considered mandatory and is required to cover day-to-day expenses, such as food, housing, gas, and taxes. Discretionary cash flow is the money left over after mandatory expenses have been covered. This cash flow is often spent on luxury items such as vacations, entertainment, and electronic devices. The process of budgeting, saving, and spending these cash flows is called financial planning.

The financial planning process is different for every individual and business. However, a great starting point is to set financial goals, such as the following:

• Invest in education

• Save for an emergency

• Save for a car

• Save for a home

• Save for retirement

• Pay off debt

• Pay for fun (vacation, entertainment, etc.)

By setting, reviewing, and revising financial goals, you can prioritize cash flows and identify potential risks. A risk that is plaguing U.S. society currently is a lack of savings. According to a Federal Reserve report in May of 2020, about 4 in 10 adults in the U.S. would not have enough money to cover an unexpected $400 expense.1 Likewise, according to a survey conducted by Bankrate in 2019, about 21% of Americans do not set aside a single dollar of earned income toward short- or long-term financial goals.2 The lack of savings is primarily a result of high expenses, low priority, and insufficient income. However, it might also be a result of individuals lacking basic financial literacy.