The place of money in our lives today cannot truly be overemphasized. It is one of the major motivations behind every human activity in our world today. It is therefore important that everyone has a complete overview on the subject of financial literacy. Our educational systems have not helped a bit in educating young people on this concept. We have graduates pouring into the world's systems today without a single understanding of the basic principles of finance.
The after effect?
Competent but broke professionals. This article will take you through some of the basic concepts on finances which will ultimately help you to improve your financial skills for a life free from financial crises. Alan Greenspan once said "financial illiteracy is the ultimate problem of the world today.
What is financial literacy?
Financial literacy can be said to be defined as an insightful comprehension of financial technicalities like saving, debt management, investment, tax, budget making, and personal financial goals. Through intense research work, I have been able to put together these seven basic principles of financial literacy;
1. Investments
This has to do with learning ways to make your money work for you. There are a million ways on the internet that can educate you in that. However, if you're a little skeptical about online investments, you can implore the services of a financial expert. Know the scope and the potential risks involved in any investment opportunity.
2. Budgeting
Budgeting is a plan that states clearly what and where you spend your money based on your monthly income. It may look basic but this is one of the reasons why many people live above what they earn. Adequate planning is required if you desire to live below what you earn. It has been proven over time that budgeting cultivates discipline. Adequate budgeting produces accountability which helps to avoid unnecessary and extravagant expenses.
3. Debt
Some people are bound to borrow money at certain times in their life. For this to be accurately exercised, you should have an understanding of the loan structure, the interest rate that is to be paid, and the value of the money borrowed across the space of time.
4. Saving
Saving is part of the habit that must be cultivated if you would ever make any financial accomplishments. Building a house, that dream car, Family planning, and traveling can only be possible by savings. It is always advisable to save at least 10% to 20% of your monthly income.
5. Credit/Debit cards
The credits you have taken so far represent your shadow in life and they will follow you anywhere you go till they are cleared off. To manage your finances appropriately, you must learn how to maintain the balance between how you spend and the extent to which you borrow.
6. Tax
Getting the required knowledge about the kinds of taxation and how they affect your businesses investments, employment, net worth and real estate is important if you want to rise significantly in net worth. You must understand that different sources of income bring with them different kinds of taxation.
7. Protecting
This has to do with planning for retirement, identity theft, insurance, and so on. You need to understand this will ensure that you are protected in every form of life. You will need to have a working knowledge of fraud, all kinds of scams, insurance concepts, to stay safe and protected.
The benefits of financial literacy
Financial literacy is essential because it helps us to build the understanding we need to utilize money well.
Expenses are reduced through adequate budgeting
Steady rise on net worth through a cultivated habit of investing
Financial decisions are easily made
Financial goals are easily attainable
Debt is controlled with less stress
It maintains stability and ensures security in financial resources
I'll like to say that Financial literacy is like a school, it has to be thoroughly taught, understood, and practiced. Pay your way through some courses to learn this concept. I assure you, it will pay off in the long run.
