First, let’s figure out what financial literacy is. For many people, this is a term from economics textbooks, but everything is much easier: you just need to understand a few principles that govern the world of finance. When the rules are clear, it is so much easier to proceed with practice.
A financially educated person has the knowledge and skills that enable him to make informed and independent decisions concerning his budget and, correspondingly, his lifestyle. Of course, that does not mean such a person will not make mistakes and suffer some financial losses, but the risk of a negative scenario is much lower for him. The thing is that he knows how to control his expenses and soberly assesses his financial solvency.
Key Principles of Financial Literacy
When studying financial literacy, you can’t just study theory. Knowledge can only help you if you use it in practice. There are a huge number of principles and life hacks in financial management, but in this article, we will look at the key ones. Let’s start in order:
- Creating a budget. To start, write down the total amount and all sources of your income, and then write down your main expenses (housing, food, transportation, etc.). You can enter this data into a mobile application for budget control, an Excel spreadsheet, or a regular notebook.
- Income and Expense Analysis. Once you can see a clearer picture of your income and expenses, it is time to analyze this information. You may want to reduce or eliminate some of the expenses altogether. That may or may not be your case; however, the most important thing remains that you live within your income and do not make purchases that leave you with an empty pocket.
- Paying off debts. Besides the fact that living with debts interferes with your moral freedom, loan interest may make you pay many times more than the amount you took. Make a list of the banks, organizations, or people you owe to, and then note the particular amount owed to them. It is better to pay off loans that charge the highest monthly interest to lose as little money as possible. You can also think about sources of additional income to pay off your debts faster.
- Creating a financial cushion. Various crises around the world in recent years have shown us that anything can happen to anyone. Job loss, immigration, health problems – all of this can lead to large unplanned expenses. An optimal financial cushion is considered to be an amount equal to your six-month salary. To create it in a reasonable time, it is recommended to put aside 10% of your monthly income.
- Investing. When your basic needs are covered, you have no debts, and a financial cushion has been created, it is time to increase your capital. You can invest in real estate, shares, cryptocurrency, or create a bank deposit. There are more than enough options, but they all require detailed study.
Following these key principles will help you achieve financial freedom. Your career and lifestyle directly depend on how you handle your finances. Therefore, in financial literacy, you need to rely only on yourself and start improving your life right away.
Life & Career Success Through Financial Literacy
If a person learns financial literacy, he begins to understand the value of money and becomes more successful. Such a person cannot be persuaded to work unpaid overtime; he will rather study the labor market and find a higher-paying position. The practice of changing jobs every 3 years for a higher salary may seem unstable and frightening, but it is effective and allows one to develop through the experience gained.
Having a safety cushion makes it much more comfortable to decide on an annual vacation at sea because you don’t spend your last money on it, and the stress associated with an unstable financial situation goes away. Also, if you invest, early retirement is possible because when money works for you, and not vice versa, life becomes easier.
Risk and Reward Principles
Everything related to finances and personal budgeting is always associated with risks. You can plan and invest, but mistakes and disrupted plans along the way cannot be avoided. In order not to turn into a goblin shaking over his bag of gold, it is important to be able to spend money not only wisely but also with pleasure. A vacation with family, shopping, or an evening at the SPA – all these are excellent “rewards” for the work done.
To be able to apply your financial literacy and make fun at the same time, you can try gambling. With each gaming session, you will distribute the budget, which you put on deposit to try slots, poker, sports betting, etc. While studying financial literacy, you’ll acquire such qualities as responsibility, stress resistance, and understanding of limits, which will come in handy when playing.
Conclusion
Financial literacy is a basic skill for any adult and independent person. Understanding your budget improves all areas of life, including career, family, leisure, and self-development. Control over finances allows you to enjoy life and reach new heights with ease.
To become a financially literate person, you need to study the basic principles of budget control and planning and then make it a reality. Paying off debts and creating a financial cushion can be a long process, based on your current financial situation. So why not start your path to financial freedom right now?