Financial Literacy: What Is It and How to Become Financially Literate

Written by: smm

on: 10/01/2023

Financial literacy is something everyone needs to have if they wish to become richer, achieve their goals, and not compromise on their quality of life.

That being said, financial literacy won’t make you wealthy overnight. But you will be aware of the rules and approaches the world’s most successful people use.

People who understand how finances work do the following things:

— Keep track of monthly earnings and expenses

— Plan out large expenses and rarely make impulsive, thoughtless purchases

— List their financial goals for the next year or even several years ahead

— Save and invest money

— Do not have loans

Key principles of financial literacy include:

#1. Control

You can keep track of your financial flows using both Excel tables and various apps and solutions. It’s important to always look for ways to save your money and not just analyze your expenses.

#2. Replenishing reserve fund regularly

You need to keep your risks of losing money in the future down to a minimum. You may lose your job, get sick, or be on long maternity leave. When something like this happens, you should have enough money to stay afloat for at least three months, or even better — for 6 months to a year. We recommend that you opt for savings in cash, accounts opened in stable banks, and deposits.

#3. Planning the budget

The best solution is to create a budget for the upcoming months and/or a year. That way, you will be able to figure out ways to accumulate money.

#4. Diversifying earnings

The better the diversification, the lower the risks. Let’s take your job as an example. If you are working in a small niche, it’s important to understand that you may very well lose your job at any point in time and your income will be gone accordingly. So it’s best that you look for additional sources of income or master a new career.

#5. Assessing possibilities and risks

The first step is to make a decision. You need to think things through beforehand, especially when it comes to loans and investments. For instance, before you get a mortgage, make sure you can handle this financial burden so that you do not spend the next 10 to 15 years of your life repaying the loan.

Use these tips and your life will change for the better!