What is financial literacy?
Having financial literacy means an individual is able to make informed and correct decisions when it comes to their money.
You might feel this is not important, but in the past years, the huge number of people who are in serious debt, the amount of money we overspend each month and how the economy is doing worldwide, all these show us that we are do need financial literacy and most of us are lacking in this area.
How will financial literacy help you better manage your money?
We all make financial mistakes. Ever since blogging about personal finance and becoming more aware of my own money management, I was shocked to see how badly some of my money decisions were. And I’m not alone in this.
Based on some of our past finance blog posts, here are some of the issues I have personally dealt with:
- Credit card mistakes – one of the biggest issues plaguing the American economy, credit card debt is SERIOUS and ruining lives. These are just few of the mistakes people make, when using their credit cards.
- Mental accounting – a very interesting insight into economic behavior, while the name might put you off, do find out what mental accounting is and see how much it ruins your financial life. Then find out how to stop mental accounting and get control over your money again.
- Home buying mistakes – a house is one of the biggest purchases we’ll ever make in our lifetime. And yet we can make sooo many mistakes. Do you think buying a second home makes you a professional realtor? Well, here are mistakes people make when buying a second home. Is mortgage underwater? Find out how to refinance an underwater mortgage.
- Forex trading mistakes – Forex investing can be a horrible way to waste money or a great way to earn a second income. Do it right and you’ll see some excellent outcomes.
- Retirement mistakes – not keeping an eye on money earning opportunities during retirement, not being prepared for retirement expenses you didn’t plan for.
- Splurging too much money during holidays – yes, you can still save money during holidays.
- Not budgeting at all or not being effective when budgeting – the 50-20-30 rule of budgeting, how to budget like a pro
- Getting a low credit score – find out how to improve credit score
- Not paying off debt effectively – 3 debt payment strategies you should try.
These are just few examples of how financial literacy could have helped you make better money decisions. While I hope at least few of these examples are just examples in your personal case, it’s true that almost no individual can really ace all these financial areas: saving, investing, real estate, making money, paying off debt and handling credit cards like a pro.
This is why, being financially literate and learning as much as you can about personal finance will make you a more informed individual and solve some of your money problems.
How can you improve your financial literacy
Now that we understand the importance of knowing how to handle our money, let’s see how we can improve our financial literacy:
Read finance blogs
It’s very easy, all you need to do is to find few money blogs that you enjoy and read their articles. Some of us are regular Joes who are writing from our personal money experiences, some are CPAs, financial advisers etc. There’s a wealth of information to be gained from us all, the specialists will show you the scientific way of managing your money, while the rest will teach you from their personal experiences and mistakes.
More on personal finance:
How to Stop Being Broke: The Ultimate Guide
Read finance books
There’s a plethora of personal finance books, just look for what you’d like to read and get informed. We are running our own best money books list, make sure to read them and recommend new ones.
There are books that will change you life forever (such as Rich Dad, Poor Dad and The Millionaire Next Door did with mine), while others will help you improve your financial literacy and make fewer money mistakes.
Start keeping a budget
I always thought that the time I’d waste keeping extensive budgets and trying to track each and every expense could be better spent doing my work, but, try to do this at least for 30 days.
Track all your expenses in an excel or a budgeting software, there are free and paid versions for every need. This little exercise will allow you to understand your spending behaviors and see where you can improve.
Afterwards, you can either go for a simple budget (the 50-20-30 budgeting rule, for instance) or any other types you feel more comfortable with.
The idea is not to keep on logging each and every penny spent necessarily, but to understand your mistakes and become better in personal finance.
Understand how retail works and how you are being pushed to over spend every minute of the day
The stores, no matter how friendly and well organized seem to be, are not in the business to help you, but to maximize profits.
More on saving money shopping:
Save Money: 20 Ways to Spend LESS Money During Christmas Shopping
Don’t fall into the trap of endless coupons and ‘sale’ notices, there’s always gonna be another sale.
I personally even ignore Black Friday or at least keep a very short list of stuff I need and get it, if reasonably priced. If not, I’m saving more money by not spending it on useless junk than taking ‘advantage’ of sales.
If you ask me, the only ones that have an advantage during sales are the retailers, as we are herd to spend our money like sheep, while they max our their profits and we deplete our wallets.
Stop any store notifications and newsletters, if you don’t receive them, you are less tempted to overspend.
Take emotions OFF personal finance
If you read my article about mental accounting you’ll have a huge a-ha moment about how the ‘personal’ aspect of your own finances is screwing your financial future. Don’t believe me, here are few short examples of personal accounting and the mistakes most of us make:
- you get a windfall (inheritance, small lottery money, a work bonus) – chances are you’ll squander the money, because it doesn’t seem as ‘important’ as the money you have worked your butt off to earn. Right?
- birthday money? – let’s spend it, it’s different from the allowance or salary. Well, it’s not, as it’s STILL MONEY, even if you don’t feel it’s worth the budgeting hassle as the rest.
- money you ‘afford’ to lose – no money should be marked as ‘good to lose’, all money is important.
Go read that mental accounting article and you’ll see what I mean.
Discuss money with your family and close friends
I am shocked to see how shy some are to discuss finances. And we wonder why our kids have absolutely no clues and, when they are 20, they are so deep in debt only a miracle can save them.
Discuss your finances with your offspring. Let them know how you do and what mistakes you made (or still make). Take them shopping with you and teach them to buy what they need, not all the useless crap they see in the stores. Teach them to calculate taxes, APRs and why an offer is not what it seems.
Teach them to be responsible with money and empower them to be debt free as much as possible.
Have money talks with those who are close to you and share experience. I have learned so much from my friends and relatives, to write another personal finance blog.
Some of their mistakes helped me not repeat them. Some of their winnings allowed me to see other financial options and improve my financial life. I openly discuss about what we do and how, because I know our mistakes or successes will someday allow those close to me to shape themselves a better future.
So, now you have it, financial literacy is IMPORTANT and you should always strive to become better at it every day. And, most importantly, please teach your kids to be better at money than we were.
