Dealing with money is a fact of life. We've all spent time worrying about how to earn it, where we'll spend it, and how much we need to save. If money management seems confusing or out of reach, remember that it's like any other skill; over time, it can be learned. And luckily, there are many ways to learn about financial literacy on your own.
What is Financial Literacy?
Financial literacy is the ability to understand and make smart decisions concerning your money. Someone who is financially literate is well-versed in day-to-day financial management, like knowing how to spend wisely using a credit card, avoid going into debt, and live by a basic budget.
For many people, money comes and goes, and we aren't quite sure how we end up with pennies in the bank at the end of the month. The good news is financial literacy is a skill that can be learned by anyone.
How to Improve Your Financial Literacy
Financial literacy revolves around knowledge of several key topics, like:
- Saving & Investing: How much you should be saving each month, how to create an emergency fund, how much of your paycheck should go towards investments, the best investments to make based on your goals, etc.
- Spending (Expenses): How to create a basic budget, what it means to spend wisely, why you shouldn't go into debt to make an unnecessary purchase, etc.
- Earning (Income): How to increase your income, using side hustles to make more money, etc.
- Borrowing: When it makes sense to borrow money, what is good debt vs. bad debt, etc.
- Protection (Insurance): What types of insurance you need to protect your family and finances, like life insurance, disability coverage, etc.
- Planning: How to create short and long-term goals, retirement planning, etc.
If you want to learn more about financial topics, here are some steps you can take:
- Use your free resources: Take advantage of the numerous free podcasts, financial blogs, social media accounts, and financial newsletters available online. These sources are full of information and can help you pull out concepts that appeal to you.
- Read books: Books can be amazing reference guides for something like financial information, which has been written about for decades. You can check them out of your local library for free or instantly download them for just a few dollars.
- Book a consultation with a financial professional: Many financial advisors do an initial consultation for free. This can be a great way to work with someone who's seen it all and get actionable advice to get your financial situation in order.
Why is Financial Literacy Important?
Not having enough money to get through the month can trigger stressful situations. When you begin to understand the concepts of financial literacy, those stressors can melt away. Becoming financially literate can enable you to:
- Pay your bills on time each month
- Understand how to create financial goals and work toward them
- Get out of the cycle of living paycheck to paycheck
- Plan for a comfortable retirement
When you gain the knowledge of how to effectively manage money, this can open up opportunities. Money should be used as a tool to help you lead a life you love, not something that holds you back from progress.
The Bottom Line
Being financially literate is more than just knowing how to create a budget or pay your bills. It's about knowing what you "should" do with your money, then putting your plan into action. When you take control of your financial literacy by engaging with and learning about money management, you may find it helps you lead a happier and more comfortable life.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: Why Financial Literacy is Important
