Life is simply just easier if you’re financially literate. I mean, sure, you’ll still have problems, but at least money won’t be one of them.
The problem is that financial literacy isn’t taught in most schools, so you probably have no idea where to even start. Crazy right? How can something so important also be neglected by basic education?
No worries though, as YOU can learn financial literacy on your own! And the best part? Starting out is very easy!
What Does It Mean To Be "Financially Literate"?
Financial literacy is simply having the skills and understanding of most of the ideas regarding your money, and the related topics of debt, investing, insurance and a few others.
There are a ton of advantages to being financially literate:
- Immediately recognize and avoid scams
- Survive financially challenging times
- Be able to do so much more stuff in the future
- Fully provide for any dependents you may have
Of course, you don’t have to learn every single idea regarding money. However, you will definitely need to learn the basics and apply them in your financial life. If you are able to do that, then you are “financially literate”.
To help you start, below are the topics you need to understand, and also a quick introduction on those ideas.
1. How To Budget
While there are more and more people budgeting (especially the younger generations), there are still those that groan by the very mention of this word.
If you picture budgets to be a time-consuming process, a pain and a nuisance, then we have good news for you: IT ISN’T!
Budgets are actually:
- Easy to make (takes a few minutes!)
- Still let you spend on fun and entertaining stuff
- Most financially successful people attribute success partly to budgets
- Enables you to take control and feel in control of your finances
Hopefully, you are now interested in making a budget. And lucky for you, we have an article that can help you with that.
2. Being debt-free
Debts are sometimes unavoidable, but truly financial independent and financially literate people have no debt. So, if you have debt now, do your best to eliminate it.
There are a LOT of benefits to being debt-free, such as:
- Stress-free feeling of relief of not having to worry about debt payments
- Being able to increase the amount you can spend, and also more importantly, save!
- Having more freedom on where to spend your head-earned cash
- Reduce your risk when it comes to personal finance
Essentially, avoid taking on debt if it is not needed. Don’t get into debt to buy gadgets, expensive accessories, and other non-essential items.
The only acceptable debt is probably a house mortgage, but only if it’s within the limits of your income. And even then, you should definitely still be doing your best to pay them early.
We actually have an article on the fastest way you can pay your debt, just in case you need it.
3. Understanding What Investments Are (And What Aren’t)
Investing is the fastest way to make even more money once you’re able to save more from your monthly income.
If you invest correctly, you might even be able to do an early or partial retirement. With more money, you’ll be able to travel to more places, buy more of the things you like and generally just enjoy life the way you want to.
Or at the very least, you’ll be able to retire comfortably if you’re short on time for investing.
If you don’t invest, however, then you’re essentially giving up on potentially more money, which doesn’t make any sense.
It would definitely be wasted potential, especially since learning how to invest properly and succeeding on it can be very easy.
The other part of learning about investing is knowing what aren’t actually investments.
Stocks, real estate, REITS, a farm and starting your own business are examples of investments.
However, items that don’t produce anything like bitcoin, antiques, paintings and currencies in general are NOT proper investments.
Investing is a large topic but we do have some of the basics covered here on our site.
4. Emergency Funds
An emergency fund is money you can immediately access when you are in trouble and need money. The usual amount to keep is about 3 – 6 months of your salary.
Did your refrigerator break and your bank account is empty? Or maybe your car needs some repair and maintenance? Or there is a health emergency not covered by your insurance?
All of the money you need for the above will come from your emergency fund.
Without emergency funds, you’ll be forced to take money from your investments. Or worse, you might even be forced into debt, which we’ve already established is not good.
So, make sure to have those emergency funds!
5. The Right Insurance
Insurance essentially protects you from financial risk and loss. With an insurance, you will be reimbursed from losses that are covered by your insurer company.
There are a few different kinds that protect you from different kinds of risk and loss. There is life insurance, health insurance, disability insurance and auto insurance as the most common types to get.
Part of financial literacy is getting insurance, but only if that type is right for you. Like, buying an auto/car insurance would NOT make any sense if you don’t have a car, for example.
The most basic mistake here involves life insurance, which should be taken by people with actual dependents that rely on them. However, a lot of people take them even when they have no dependents!
Insurance is amazing, but only if you understand how to actually use it.
6. Living Below Your Means
“Living below your means” is spending only less than the amount you make. If you practice this, that means you adjust your lifestyle to only buy the things you can afford, and never go into debt or spend too much.
You should definitely still buy the things you want, just make sure you’re still able to save money (and preferably invest those savings as well.)
If you think about it, when you practice “living below your means” you get to save more and invest more. The more you invest, the more you earn from those investments. Before you know it, you’re investment earnings have already reached so high that now you can spend things you never could have afforded before.
Essentially, this principle enables you to spend less now, so you can spend so much more in the future for the big and expensive luxury items that you want.
7. Having Huge And Clear Financial Goals
Some people don’t save or invest because they just aren’t dreaming big enough.
Being content with what you have is great, but when emergencies and financial crises happen, having more is definitely better!
Besides, I’m sure you have dreams you want to fulfill that cost money. I, for example, want to travel to a lot of different countries, experiencing their food and whatever luxuries I can afford. You probably have something like that, right? That’ll definitely cost a decent chunk of cash.
Think big, and do your best to reach those big goals.
Where To Start Learning
I’m gonna take a wild guess and say that you probably enjoy YouTube videos, and fortunately enough, there are YouTube channels out there that are dedicated to financial literacy and investing.
One that we like a lot is Two Cents, a very well-made financial education channel.
Our blog is also a good source of lessons about proper personal finance and investing, so make sure to check back every so often!
Just be careful that not all videos and blogs are correct. We’ve read a lot of money losing bad advice and lessons out there, so keep your eyes open!
The basic ideas you need to know about financial literacy are introduced in this article. Although you don’t need to take a four-year college course to master these concepts, it will still take some time.
Learning about being free from debt and about how to easily make budgets will only take a few minutes. However, learning about proper investing will definitely take at least a few days.
Don’t rush though, and enjoy the learning process.
Good luck and we hope you learned something!
Do you want more finance and investing guides? Follow us on Facebook. We try our best to upload a blog every week, mostly about making a good chunk of money with proper investing, and with some blogs being about responsible personal finance.
Want us to cover a specific investing or personal finance topic? Reach out to us through Facebook or comment below!