5 Way to Improve Your Financial Literacy
Developing financial literacy is important to put yourself on the right path towards financial security as well as to take control of your finances. It is never too late or too early to start improving your financial knowledge. Being a financially literate will help you to spend less, earn more, and make it easy to achieve your goals. Following the five major steps below will definitely help you to develop financial literacy.
Familiarize Yourself With Your Household Finances
The very first step is to know exactly how much money is coming and how much going out and where is it going. There are various steps that you can take to familiarize yourself with your finances.
- Start by reviewing the monthly statements of your bank. Figure out how much money you are spending and for what other than on your monthly bills.
- Evaluate your monthly bills. You should be clear about whom you are paying each month, how much you are paying and for what purpose.
- Next analyze your credit card statements. Find out what the total balance is, how much you are paying on your cards monthly and how you use it.
- Keep a track of all your loans. It is very important that you know how much you owe and for how long.
- Also review all your investment account statements. Be sure about where your money is invested and how much you are earning every year against that investment.
Set A Financial Goal
It will be easy for you to fulfil your financial responsibility when you have a specific goal. No matter what your goal is- to purchase a new car, remodel the bedroom or to upgrade an appliance, having a purpose will make it easy for you to save. So, plan a budget and stick to it. Once you are aware about the amount of money that is coming in and going out, having a budget will make it easy for you to save for your goal.
- Start by keeping a record of all monthly spending, right from groceries, gasoline, clothing, dinner and lunches, expenses and so on. Make sure that all your records are listed.
- Use your spending record as a guide to note down a spending plan, eliminate all the unnecessary expenses and decrease the ones that may be too high.
- Revise your budget if required. Your financial goal may differ whenever any changes or elimination made on your monthly bill or your income increases or decreases.
- Make sure your budget is flexible so that you can easily stick with it.
You should be open and honest about your finance with your family and spouse. Both the husband and wife should know where the money is going and be involved in every financial decision. It is not about knowing where and how each one of you are spending, but it is all about being aware about your financial situation and being involved in every decision.
Understand What Good Debt And Bad Debt Is
In order to gain financial literacy, it is necessary that you understand what good debt and bad debt is. Any type of debt that created value and let you build wealth over time is good debt. Some of the common examples are-
- Mortgage where you build equity in the home and value of the home increases and the debt decreases
- Education loans due to the potential value of a degree that can be earned by acquiring the debt
On the other hand any debt that continues to increase and the value of the item purchased with the debt decreases, is a bad debt. Any item purchased using the credit card and car loans are some of the examples of debt.
So, once you have educated yourself about finances try to avoid common money management mistakes. Make sure there is more money coming in than what is going out. Avoid living on credit, cut down on luxurious or any non-essential items and start living within means.