Life is always full of challenges, and the majority of them are caused by financial instability. No matter how much you are earning, if you don’t plan your expense well, you will always find it challenging to meet your family’s needs. However, financial literacy can help you to devise strategies for the proper management of resources. So, what is financial literacy?
We can describe financial literacy as the ability to make the right decisions regarding the management of personal finances and emotions and stress related to economic challenges. It’s a knowledge that many of us lack; that’s why many of us cannot predict the total amount our family may spend in the next 4-8 months.
A person with financial literacy knowledge clearly understands the essential tax information, drafts a realistic budget, and differentiates between saving methodologies. There is so much we can cover on financial literacy, including saving for your retirement benefits.
However, you don’t have to become a financial expert to be acknowledged as a financially literate individual. It’s all about having the necessary information to help you make a wise decision and ask the right question about your financial data. Financial literacy helps in better personal finance management. This is a general concept and involves investment, budgeting, borrowing, and taxation.
Concepts of Financial Literacy
It gets messy when you had to handle lots of debts, and your salary is never enough to meet your family’s needs. It means that you’ll keep living in a circle of financial crisis, which can result in health problems such as stress, disorders, and finally, death. It’s, therefore, ideal for learning how to manage all your income and enjoy a debt-free life. Below are the significant concepts of financial literacy everyone should consider.
When it comes to budgeting, you will have to focus on four main areas: spending, saving, giving away, and investing. Balancing how you use your money able you to plan effectively for your income so you can have financial prosperity and security. A reasonable budget should allow one to clear all debts and leave some money for investment purposes.
For instance, you can include a new plush 7-seater sofa set on your budget, but it’s another thing to get the finance to pay for it. We live in a competitive world where everyone wants to get the best for their life. As a result, a large segment of our population strives to live lifestyles that are beyond them.
Your kid is joining college, and you had to save enough for their fees; your colleagues will view you as a failure who can’t educate his kid. Research indicates that people with financial literacy find it easy to create a realistic budget and archive them in the long run. It calls for self-discipline and the ability to sacrifice to see your goal successfully.
In summary, your budget should include the following;
- Strategies for following a monthly spending plan
- How to lower your monthly bills
- Ways of handling accrued debts
- Distinguishing long-term, short-term, and medium goals
- Detailed family financial needs
When you’ve got an emergency, will you be in a position to raise $1000 to solve the problem? The main reason why raising an emergency fee is essential is to help you when you have an issue, and you’ll not have to invade the other money you’ve allocated for a different project. However, Financially literate people have the skills and knowledge to build an emergency fund quickly. It can start from as low as $200, but with time, it can grow to over $10,000.
Credit cards, student loans, auto loans, and mortgages are among the financial problems that burned many of us today. It’s sad to report that some of us often spend more than half of our salaries to clear debts. Too much debt can impact one’s lifestyle in the long run and will deny you a chance to make investments in your future. So, financial literacy is the knowledge you need when you want to plan the best for your future. With financial literacy knowledge, you can understand compound interest, payment periods, loan structure, interest rates, and time value of money that will allow you to get a better loan offer. As a result, you can reduce long-term stress related to debt penalties and growing interests.
Another key concept in financial literacy is taxation, and every individual needs to understand the different taxation forms and their impact on net income. When dealing with employment, rental, investment inheritance, or unexpected source of income have different taxation. When you are informed about tax rates, it will ensure you are economically stable there, increasing your financial performance.
When dealing with financial literacy, it’s also essential to understand your credit score history. A good score means you can get access to the best credit cards or loans. You can use free credit monitoring service to obtain information on your credit records. On the other hand, you should also look for factors responsible for your credit history, including credit utilization ratio and credit inquiries.
Credit Report: Knowing your credit report is very important, and you can always ask for a free report from the major credit bureaus in your state. Take your time to go through the report and settle any dispute that you may be having to clear your name. in case there are inaccuracies, inform the credit bureau. If you can request a credit report from more than one credit bureau annually, you can avoid sending your request all at once to ensure you monitor your progression for the whole year.
How do you become financially literate?
Not everyone you see today who are knowledgeable about financial literacy was born informed. It took them some effort and dedication to become financially literate. We shall look at the significant ways through which you can become financially literate.
Enrol for classes
It doesn’t matter whether you have a degree, master’s, or Ph.D. in other fields because financial literacy is essential in day-to-day life. If you have limited time, you can always enroll in an in-person or online financial literacy course.
Most of the institutions you see around you today offer these courses at affordable prices. Moreover, you can add accounting courses to make your time in the institution worthwhile. Consult your local community college before enrolling in an online class.
The fastest and most efficient way of gaining knowledge on financial literacy is through reading. You can google all essential information on financial literacy and take time to read and understand as much as you can.
Alternatively, you can buy eBooks on investment topics or any that handle financial matters. On the other hand, you can visit a public library and find reliable information on all these financial literacy topics.
Listen to radio shows and podcasts
Some people are always experts in financial literacy, and they always share their knowledge with the public either on TV shows or Podcasts. During such sessions, you can obtain highly valued information from the point of experience. Moreover, the presenters use real-life examples of financial literacy, and it’s easy to understand the information they provide.
Talk to financial professionals
Estate planning specialists, tax planners, or financial planners have all the knowledge and skill relating to financial literacy. By working with this professional, you can deduce tactics you can deploy to earn your financial freedom. Instead of making calls, spare your time to have a one-to-one session with them. if you have questions that have been bothering you on financial literacy, you can always ask, and you’ll get detailed and informed answers
Watch YouTube videos or TV Channels
Unlike reading books or listing to audio, watching videos can be a good way of grasping information and remembering them. Furthermore, it will be more entertaining than the financial problems that have been burdening you. These videos provide information on stock market participation, investment, and finance in general.
When you search “financial literacy” on YouTube, you’ll find many of them, watch some of them and gain helpful information that can help you with financial decisions, budgeting, and settling debts. Furthermore, there are times when TV channels host Financial literacy professionals, and such discussions are a better way of obtaining reliable information.
Financial literacy is a broad topic, and there are many facts you can learn that can improve your money management strategies. We understand how hard it is to manage debts, expenses, and loan settlement strategies, but nothing will ever block your way when you are financially literate. As you strive to improve your financial literacy knowledge, pay your monthly bills in time to avoid increases in interest. Furthermore, you should always include all your expenses and pay yourself by fulfilling your dream goals.
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