What is Financial Literacy?
Financial literacy is having all the set of skills and knowledge to make informed and wise financial decisions. It can take even a lifetime to learn all about money but there are few basic things which need to be taken into consideration before making financial decisions and that is what is the first step towards Financial Literacy.
Here are 7 steps to guide you through your personal finances.
1. Upgrading Financial IQ
Many people never try to learn how to manage their money, they most neglect it or hire professionals to do that which is one way to do it if you are someone who is very busy or prefers taking professional help. It is always important to at least know the basics of managing money as money is something that everybody has to deal with. Many professionals suggest adding basic financial knowledge at the school level in order to make our coming generation financially literate.
There have been cases which show that even avid entrepreneurs, professionals etc. have made financial mistakes due to the lack of financial literacy. People come with arguments like it is a personal thing and that everyone learns money lessons their own way. This is partially true, even though people do learn about it in their own way, there should be few things which never go wrong such as making plans for how to use money, knowing the basics of all asset classes, basic tax planning, etc.
You should know about all kinds of assets available in the market, if possible do some research and find out which ones are most suitable for you. Think about how your portfolio should look like and act on it.
Understand the difference between a good debt and a bad debt. Try to avoid debts especially the ones that are really not giving any benefits as such. For example a house loan is a good debt as it gives you tax benefits while a loan on a credit card or personal loan can erode your wealth.
4. Retirement & Contingency Planning
Retirement is a period that will reflect your overall financial health as that is a time where you clearly do not want to worry about money and its affairs. Retirement can be the best days of their lives for those who have all their finances figured out from the very beginning. They know how to make enough corpus for their retirement including all health and emergency expenses.
5. How to Manage Your Money
It should be given priority and you should learn from the very basics such as how a bank account works and how you can spend money from it. After this, you should try to put constant attention to your expenses and savings and thus not try to over spend and save as much as possible in order to invest in appropriate assets.
Being able to make a budget is one of the most basic skills to manage your finances. A budget is nothing but a type of plan involving all the income and its allocation so that no important thing is left out and no money gets spent on unnecessary things. Making a budget is an easy task, what really takes effort is actually going according to it. It requires that you analyze and most likely change your spending habits. This step is all about having control over your money so that finances do not become a reason to stress over.
7. Savings and Investments
Savings and Investments are something that go together as saving without having a plan to invest makes no sense. Keeping money idle in the bank will only help you see your money de-growing. You would definitely not want that so savings should be done having an investment plan in the mind.
Investment also needs to be done strategically, according to a plan. It should take various factors such as your Financial Goals, time-period available, liquidity needed etc. into account while making a choice of the financial assets.
Financial Literacy can be tricky for a lot of people and there is nothing wrong in seeking help from your friends, family or any professional who you think can give you good financial advice and teach you the ABC of Money Management.