What is Financial Literacy?
Managing personal finances can feel overwhelming. Maybe you have asked, “What exactly is financial literacy and how can it positively impact my situation?” Or maybe you have never heard of the term. Either way this article is for you as it looks into into the core principles of literacy highlighting their importance and offering advice to boost your money management skills.
Financial literacy means knowing and being good at things like managing your money, creating a budget, and investing. It helps you make smart decisions about your finances, which can lead to being financially stable and independent. To get better at this, you start by understanding what financial literacy is and why it’s important.
5 Basic Principles of Financial Literacy
- Earning
- Saving and Investing
- Protecting
- Borrowing
- Spending
Earning
Simple Explanation: Earning is anyway that you make money, like from your job or investments. Other sources of income could be from rental property, or side hustles like dog walking, delivery services, freelancing, creating and selling products online or at a market…the list is endless.
Why It Matters: Making smart choices about your job or career helps you bring in more money, setting you up for financial success. Monetising your skills can add to your finances while doing something that you like and enjoy.
Saving and Investing
Simple Explanation: Saving is putting money aside for later, and investing is using money to make more money.
Why It Matters: Saving and investing are crucial for building wealth and achieving goals. Saving helps you be ready for unexpected costs, and investing can grow your money over time for future goals. Starting this skill even in small incremental ways, put away $5 a week then $10 will build good habits that can grow and strengthen. Individuals who try this can see the results over time and improve on their saving practices.
Protecting
Simple Explanation: Protecting means keeping your money safe, like using insurance for emergencies.
Why It Matters: Why try all that hard work making the money and saving the money if something happens and it is needed for unexpected expenses? Let’s face it: life happens, things go wrong. Insurance helps you avoid big financial problems if something unexpected happens, like getting sick or having an accident.
Borrowing
Simple Explanation: Borrowing is getting money now with a promise to pay it back later, often with extra money (interest) added.
Why It Matters: Knowing when and how to borrow wisely can help you achieve monetary goals, but it’s important not to borrow too much and end up in financial trouble. Borrowing can be a great tool but it takes a certain mindset to take on this responsibility. What is it for? Will it assist with building personal finance goals?
Spending
Simple Explanation: Spending is using your money to buy things you need or want.
Why It Matters: Spending wisely means making choices about what’s most important to you, so you can stay on track with your money goals. Ask yourself: Do I need this? How does it help my personal finances? Say no to yourself or wait a day, an hour a week to buy that coffee, that shirt, that snowboard, check back in, How did work out?
These principles are like a toolkit for managing your money. They help you earn, save, protect, borrow, and spend in a way that sets you up for a secure financial future and they can provide a framework for effective money management. Whether you’re earning, saving, investing, protecting, borrowing or spending money being informed and making intentional decision in each area contributes to a solid financial foundation and long term success.
How to improve your understanding of Financial Literacy for your Personal Financial Situation
Educational Resources
There are lots of ways to educate yourself and not all ways cost money. There are online resources such, as websites, blogs and (free or paid) courses that provide valuable insights into budgeting, investing and financial planning. Or go old school and read a book, buy it or go to library. Don’t forget about audible books to listen to while on your walk or commuting into work. see article on best book for financial literacy Regularly dedicating time to educate yourself in these areas will continuously enhance your literacy.
Seek Professional Advice
Consulting with experts or professionals can offer guidance tailored to your specific financial circumstances. Financial advisors can help you develop a plan and provide insights, into investment opportunities aligned with your goals. Getting advice also doesn’t have to cost you money. There are non profit agencies out there set up to help you for free!
Knowledge is a powerful tool….
Financial literacy forms the foundation for maintaining finances. By understanding the concepts of budgeting, saving, investing and managing debt individuals can take charge of their futures. Remember that continuous learning and seeking advice are key components for financial confidence and it’s not something you achieve once and forget about; it’s a journey. Learn and grow as you go. Understand that life is unpredictable and mistakes happen, when things go off track, go back the basic principles and adapt. Financial literacy is more than a concept – it’s a powerful tool that can transform your relationship with money and pave the way, towards greater financial security.