Financial Planning is one of the most significant contributors to a stable life. It prepares you for any emergency in life.
It is essential to make the right financial choices when required, and taking the right decisions at the right time is financial literacy.
Every individual should be financially literate to lead their lives smoothly.
Financial literacy does not require being fluent in accounting lingo but using your knowledge and skills to make the right financial decisions at the right time. Being financially literate ensures financial stability for you and your family.
Assessing your Financial Literacy
Gaining financial knowledge is one aspect of financial literacy, and its assessment is another.
To check and augment your knowledge, it is essential to assess your financial knowledge by asking some questions yourself.
- How to create a personal budget?
- Do I have an emergency fund?
- What is my retirement plan?
- What is my plan to pay off my personal debts?
- What can I do to improve my credit score?
- How can I augment my financial knowledge and be financial literate?
The absence of proper financial planning can make it challenging to fulfill significant decisions in life, such as smooth retirement or paying off your personal debts.
Many educational institutions offer courses on financial management or financial education.
These institutions focus on the technical aspects of financial education, but few essential components are applicable everywhere and are required to be financially stable.
To implement the concept of savings and investment, it is essential to know the total amount of money being earned by you and that you have.
Having the same money inflow makes it easier for you to manage your savings, investment, and spending. Since you are making the same amount of money, you can make a long-term financial plan and work it out accordingly.
To formulate a financial plan, check all your deductions and insurances as they will lead to accuracy.
In case your income varies from month to month. It is essential to calculate regularly and then plan your spending, investment, and savings.
Calculating your monthly income accurately will help you form a personal budget and ease off your financial budget.
Your personal budget allows you to allocate funds in spending, investment and saving effectively. You cannot set a personal budget in a month.
It is essential to track your spending for a month to understand your needs and spending pattern and then conclude.
Once you are clear with your spending pattern, you can quickly put funds in your savings and investment.
To create an adequate financial budget, you have to regularly check your spending as it forms an essential part and the basis for your financial stability.
After spending, the next step is saving. The importance of savings is a universal concept, but its significance varies from person to person. Also, the savings amount depends on the amount you earn plus the expenses incurred every month.
But, irrespective of the amount earned, few financial saving goals should be included in everybody’s budget, such as:
Emergency fund savings
An emergency can happen to anybody and at any given point in time. Having an emergency fund helps help you deal with any emergency and gives you peace of mind.
As per the financial experts, it is advised to keep funds of a minimum of three months of your basic living to lay off a financial burden or a significant medical expense.
It is rightly said, “The earlier, the better”. To plan a secure retirement, start keeping funds aside from today. You can create a retirement fund and save money aside regularly.
Any big purchase requires bigger funds. If you plan to buy a new house or a new car, you should have sufficient funds to manage your significant purchase.
This is possible if you have a separate fund account for a big purchase, as taking money out of your regular expenses can make it difficult for you to manage your regular costs.
Many people borrow personal loans for various purposes. There can be multiple loans such as student loans, car loans, personal loans, credit card funds, etc.
Different interest rates are applicable on different types of loans. You can save a lot of money on your interest by paying off your loans on time.
Managing your borrowing becomes a crucial part of financial literacy. At any given point in time, you may have to borrow an amount to cover our more considerable expenses, such as purchasing a new house or a new car.
Borrowing not only includes borrowing money but also paying back the borrowed money on time with its interest. Borrowing and paying back on time helps to build a good credit score.
A healthy credit score makes you a trustworthy borrower. You can keep track of the Annual Percentage Rate to compare various loans and their interest rates.
There are many loans available in the market, some of which are no credit check loans. These loans are easily available without a guarantor. You can borrow such loans to fulfill any financial commitment.
Generally, your credit score is indirectly proportional to the interest rate on your loan. If you have a good credit score, you will be charged less interest rate than others.
Hence, you should focus on building a good credit score to gain financial literacy.
Once you are done allocating the budget and your strategies, protecting your money from any fraudulent or suspicious activity is essential.
Keep monitoring your bank accounts and credit card statements regularly.
You can make a separate place physically and digitally both to secure all your documents and passwords. Also, to save yourself from any theft or loss, you can buy any good insurance and be safer.
Benefits of Financial Literacy
Until now, it must be clear the importance of financial literacy and the ways to improve it. Financial Literacy benefits your present as well as future finances and keeps your finances aligned with your goal.
A Financial literacy leads to financial stability, which keeps you on the right path. Following are mentioned few more benefits of financial literacy:
Financial literacy gives you control over your money. Instead of money controlling your decisions, you get to maintain your monetary decisions. Controlling the reins of your finances makes you more confident.
It helps you in making rational decisions and motivates you to save more for the rainy days.
When your finances are in control, you think better about your money and burden you with unnecessary pressure.
Debt is one of the biggest enemies of today’s youth. Loan borrowing has been made easy these days but paying it back with the interest rate becomes difficult due to financial constraints.
When you have adequate financial knowledge, you start to understand how finances work and how to save and increase your money.
Also, you get to know about the debt functioning. To avoid debt disaster, you can make use of your financial knowledge and safeguard yourself. It helps you to create a plan for any financial emergency.
Understanding the importance of financial goals
If you have financial knowledge, you may set specific financial goals for your future. Setting up goals motivates you to achieve those goals and be financially secure.
Financial literacy encourages you to set goals in life and achieve them efficiently.
The Final word
Financial Literacy helps you to identify threats, set and achieve goals and make your future financially stable. It makes you analyze and assess your financial knowledge, ask the right questions, and helps you find appropriate solutions to your questions.