“Nothing becomes real until it is experienced”~ John Keat.
Just like picking up a book and comprehending the words on each page, financial literacy means being able to pick up a bill, bank statement or transaction history and truly understand how it affects you. Not everyone is at the same stage of financial literacy. Some may need to learn a lot more, but many simply need a refresher course to realign their focus on a stable and successful financial future.
Encompassing a broad range of money management rules from developing a household budget to planning for retirement and evaluating a personal balance sheet, financial literacy shapes the way we view and handle money. Below are five points to kick-start your journey to financial literacy.
Identify Your Starting Point
If you do not know where you are financially, it can be challenging to plan for where you want to be next year, five years from now or decades down the road in retirement. That is why it is important to identify your starting point.
Calculating your net worth is the best way to gauge both your current financial status and your progress over time. Net worth is the amount by which assets (what you own) exceed liabilities (what you owe) and can provide a wake-up call if you are off track or a confirmation that you are doing well.
Set Your Priorities
Creating a list of needs (what we cannot do without ) and wants (what we can live without) can help you set financial priorities. Many people get into financial trouble by spending too much on wants and do not have enough left over for their needs. Being mindful of the distinction between the two when making spending choices goes a long way when it comes to your financial wellness. Rank your needs as well as your wants in order to clearly define where your money should go first. This not only applies to your current expenses but also to your goals as well.
Document Your Spending
Most people could tell you how much money they make in a year, but few can state how they spend, and even fewer can explain how and where they spent it.
One of the best ways to figure out your cash flow, what comes in and what goes out, is a personal spending plan, also called a budget. A budget forces you to put down on paper all of your income and expenses. This is an indispensable tool for helping you meet financial obligations now and in the future. Many people are surprised to find out just how much money they are spending on superfluous goods and services and a budget can be a real eye-opener when it comes to spending choices, and how to manage them.
Pay Down Your Debt
Most people have debt in the form of mortgage, medical bills, student loans and the like. What makes living with debt so costly is not just the interest and fees, but because it can prevent people from ever getting ahead with their financial goals. While the best strategy is to avoid getting into debt to begin with by making practical spending choices and living within one’s means, there are strategies to pay down and eventually get out of debt.
Secure your Financial Future
You cannot always control when you will retire. You could lose the job, suffer a long illness or injury, or be forced to care for a loved one, which could lead to an unplanned retirement. Learning more about your retirement options is an essential part of securing your financial future. Even if you cannot save much, every penny helps. Once you have developed a plan, you could end up making better spending choices now that there is a goal in mind.
Another way of securing your future is by saving. Having an emergency fund will protect you from unexpected expenses. Having savings can also help take advantage of opportunities that may come your way. Savings eliminate the need for debt.
You should also get yourself and your loved one’s insurance, especially life and health insurance.
Even though you may be out of school, you are never done with financial literacy. It is best to be proactive, even if you did not learn money skills at home or school, it is never too late to catch up. Realigning your focus and adjusting your finances now will make all the difference to your future.
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