Financial Literacy

Financial Literacy – Free Guide to Money Management [2021]

This is the 20th article of Capitalist Cabin, and I thought, why not talk about something that is on a boom and will stay the same for years to come. Teens, young ones, adults, everyone is talking about Finance and Financial Literacy.

The world is no more about paying bills till 60 and retiring’. More and more people are drooling over Financial Freedom and Early Retirement. The concept of FIRE (Financial Independence Retire Early) is more popular than ever. Now, to achieve such freedom and life, one needs to be financially literate. If you learn the basics of money, finance, saving, and investing, it’s evident that you’ll be more cautious with your money and plans.

What is Financial Literacy?

Financial literacy is measured by your ability to make better financial decisions and manage your finances in a better way. Having better ideas and goals with your money helps you figure out your life, wants, and needs in a better way. Well, that is a bare minimum now. But, to step together with today’s world, you need to know a lot more than just basics.

You need to know how credits work; you must know the basics of taxes, stock market, inflation, recession, compounding, diversification, financial rules for individuals, etc. And no, you do not need an MBA in Finance or something. Basics are the necessity and further is up to your interest.

Keep on reading to get a better hold of financial literacy and how it may help you better your financial goals.

Financial Literacy

Why is it so Important?

It was elementary to get a degree, get a job, and pay the bills. Now, as technology advances, more and more people are making fortunes. Among these are people who earn less but live rich and vice versa. With the same amount of money, different people act in different ways. The level of an individual’s financial literacy determines the way he/she uses his money.

And this is why Financial Literacy is critical. For example – let us take the United States. The financial literacy of America is such that most of the people still don’t know when & how to save and invest. This forces FINRA (Financial Industry Regulatory Authority) to issue a test of five questions. This test measures the level of financial literacy among people.

Not only the USA, but every country has the majority of people doing the same. People spend more than they earn and rely on consumerism. Credit cards & stock markets are termed as gamble or scams, while these two have immense power to transform your life. Although managing personal finance is fairly simple, people still don’t get it.

Everything has advanced online, and it is good. It has benefitted uncountable people. But this is all the more reason that people over-spend and over-extend their purchasing power. All these reasons point out the immense requirement of Financial Literacy.

Example of two

What comes under Financial Literacy?

A comprehensive set of financial topics that are necessary to make smart financial decisions. Topics such as debt management, credit management, personal finance, basic knowledge of taxes, etc. Basically, everything that enhances one’s understanding of how money works fall under the category of financial literacy.

It teaches you how to manage credits, save taxes, avoid debts, create & manage budgets, etc. A person who earns less than the majority but has good financial literacy can make better financial decisions. Eventually, that person only lives debt-free and may create better wealth than the rest.

A deeper understanding

Technology has made innumerable things easier than ever. This also contains the online payments feature. Indeed, it has eased the hassle of payments and carrying cash, but is it healthy? Because it is human nature to do easier things more than required. The easier it becomes to carry out payment, the harder it gets to manage and maintain spending.

If we go by numbers, today, less than 20% of people prefer cash payments. The rest are paying online everywhere they go. Suppose you are shopping online, you needed to buy a T-shirt, but you ended up buying 4-6 items. Why? Because these sites are designed to lure you into buying more, and the offers they give pull you. The moment you pay online, you feel good about being made a fool! Exactly, you are a fool! You couldn’t resist. You couldn’t stick to your needs and budget.

And why do you think it happens every time? Because you don’t have a good understanding of financial planning, management, and budget. In short, you are not financially literate. 

 The men behind these technologies indeed make things easy, but do they do it for you? No, they make things easy for you, they trap your psychology, and they force you to spend more.

If you don’t want to be fooled, read along because I am going to tell you some ways. These ways will help you plan your finance along with making you financially literate.

Helped me in Financial Literacy

Methods to improve your Financial Literacy

To improve your financial literacy, you need to practice methods like budgeting, taxes, debits, and credits. Let me explain a few of the most important ones –

Budgeting

I have written a whole article on Budgeting here on Capitalist Cabin. If I were to summarize it in one point, I’d say – “Create a Budget, now!”.

Having a budget sets definite boundaries for you. How much you have to spend, how much to save, invest, grant, etc., everything gets organized if you stay within a budget. Customized and organized present with planned future, this is what a budget offers.

Pay Bills

Whatever the bills you have accumulated over the time, be it recurring bills or one-time bills, pay them off. The sooner you start getting rid of bills, the better idea of save/left money you have in mind. And this helps you plan your whole month or year in a better way.

You can sign up for monthly reminders to pay your bills or even set up automatic bill payments if possible. See, when you get rid of all the bills beforehand, you’ll have a burden off your shoulders, and you’ll be able to plan your month better ahead.

Credit Score

Credit cards are considered a trap. Well, this is by the people who don’t understand it well. Half knowledge is dangerous!

 See, credit cards can be of great help. Here is how – When you sign up for a credit card and keeping paying the credit on time. Your credit score increases. A credit score is a measure to know if someone is capable of paying bills/loans on time. A high credit score tells that the person is reliable, and if given a loan, he’ll pay it back in time.

Moreover, if you have a credit score of more than 800, you’ll get bank loans at fairly low-interest rates. A great hack, isn’t it?

Remain & get out of Debt

The worst thing that can happen to anyone is – A negative worth! How does one’s worth go below zero? Easy, when the expense is more than income and liabilities are more than assets. Debts play a major role in one’s financial life: greater the debt, greater the threat to your present and future self. You don’t want to keep paying back loans and EMIs; you need to save as much money and increase your net worth.

The most basic lesson of personal finance is to earn more, spend less, invest more, and become debt-free.

 

Read More on Personal Finance Here!

Reach me out twitter – @sushrutkm

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