Financial education is one of the most important skills to learn in today’s world.
However, it is not a subject which is mostly talked in schools and colleges, financial education is not about being genius in your school and obtaining higher marks.
It is about making the right decisions about your personal finance, schools only focus on professional training and do not teach about money and finances, that is the reason why many Engineers, Doctors, Nurses, Accountants and many more professionals struggle in their financial lives.
They know how to make money, but they do not know how to manage their money and at some times in their life they can go broke and lose all the money they have earned. Schools and Colleges teach students on how to become good employees and follow the rules that is why financial education is completely left onto the parents.
The financially genius and rich parents will teach their children on how to save, invest and manage their money at a very young age, if parents do not teach their children at a very young age on how to manage their money then the poor will get poorer and the rich will get richer.
Why is financial education important to answer these questions we have to know what is financial education?
Financial education is the ability to understand how money works in this world, it is the art of investing and managing money and the ability to make sound financial decisions.
Most of the people make the wrong financial decisions and as a result they lose all the money they have saved for years to understand it clearer.
According to Bureau of statistics nearly half of American’s do not expect to have enough money to retire comfortably.
Credit card debts have reached its highest point ever more than 189 million.
American’s have credit cards, the average credit card holder has at least four cards on average each household with a credit card carries $8398 in credit debt.
The total US consumer debt is at $13.86 trillion dollars, 40 percent of American’s can’t even afford a $400 emergency expense.
These statistics clearly show how we like financial education, most of the people think money is the real wealth, that is not the case money come and go the real wealth is only and only financial education.
If you go broke sometime in your life and lose all your money you can gain even more than that with your financial education.
So how to improve your financial literacy?
To better understand the money rules, we should know about assets and liabilities.
Asset is what produces money and liability is what takes money away from you.
Example the property you own and rent it to a renter is an asset you rent your property and the renter pays you rent every week or fortnight assets put money in your pocket.
The property which you live in and have a mortgage on it is a liability, because it takes money out of your pocket.
A financial literate person tries to accumulate more assets and less liabilities if you want to become rich then you have to have more asset class in your portfolio, make wise financial decisions and stay away from unnecessary debts be wise get rich.
Since education is the secret to success when it comes to money the earlier you start the better you’ll be.
Getting financially Knowledge requires a lot of effort and self-control.
It takes time to develop, some people live paycheck to paycheck their entire lives without ever saving a penny, it may not seem attractive but learning how to manage your money from a young age will set you on the correct path to financial literacy.
Fundamentals of Financial Education –
Budgeting: –
The process of making a spending plan is known as budgeting financially literate.
“People refer to this plan as spending money.” Making a spending plan enables you to estimate your financial situation in advance and decide whether you’ll have enough money to accomplish your goals.
Most individuals have experimented with the idea of setting up a budget, used a budgeting tool, and even read one or two articles about how important it is to do so. Only a small percentage of people, or even none at all, adhere to their budgets.
Where your money goes is the main goal of budgeting, as it helps you make wise decisions. Just remember that little dollars here and there pile up over time. Knowing your spending patterns can enable you to identify areas where you may make savings and cost reductions.
For creating and following a budget is to record all of your purchases and make sure to keep track of where they are, how much they cost, and how that affects your budget. You might need to do this by keeping your receipts and making sure everything matches up with your bank.
Over time, you’ll stop making all the impulsive, unnecessary purchases and finally be able to control yourself.
Stop spending your paycheck and start saving: –
The world’s richest people did not become so rich by blowing out their whole paychecks each month.
The Millionaire Next Door by Thomas J. Stanley reveals that, a lot of self-made millionaires live humble lives and spend their money carefully.
In Stanley’s book, it was discovered that the majority of self-made millionaires owned used automobiles and resided modestly priced homes.
Additionally, he told that people who wear designer clothes and drove fancy cars were actually in debt to the point of bankruptcy; their extravagant lives simply could not support them, as seen by their low salaries. To begin with, live on 90 percent of your salary while saving the remaining 10 percent.
You won’t forget to put that money away if it’s automatically withdrawn from your paycheck and placed in a retirement savings account. Gradually raise your savings while reducing your consumption. In the long run, learn to live off of sixty percent to eighty percent of your income and put the other 20 to 40 percent invested.
Set proper financial goals: –
A monetary milestone that you intend to reach or achieve is known as a financial goal.
A crucial first step to achieving financial security is to set short-term, mid-term, and long-term financial goals. Compared to shorter-term financial objectives, which don’t require as much saving. Longer-term goals may demand more planning and savings.
Financial objectives can be challenging if you haven’t considered your lifestyle preferences for the next 5–10 or 20 years. Once you’ve done that, you can consider how money can help you realize your goals, even if your original plans change.
You can change your financial goals throughout your life. Putting your financial objectives on paper can be beneficial. You may be able to prioritize better.
If you set financial goals, they enable you to clearly understand the reasons behind your hard-earned financial decisions.
Learn to clear your debt: –
Many people lose concern for their debt and become comfortable repaying it. Repaying debt has become a way of life for many with credit card debt, mortgages, Student loans and auto loans.
Your financial situation will be greatly affected by paying off your debts.
There are several ways to get out of debt, the “snowball effect” is a popular way to keep people motivated when paying off debt. List every debt you have in order from largest to smallest, except for your smallest loan, make the bare minimum payments on all of your debts. Put as much cash as you can in each month towards paying down your smallest debts.
The objective is to pay off that little debt in a few months so that you may go on to the next one. There’s one thing to remember: pay off your debts but avoid going into further debt.
It can be very tempting to think it’s okay to start spending again when you notice low balances on your credit cards. That’ll simply land you back in the same situation. Maintain self-control and limit your use of credit cards over time. Consider lowering your credit limits or cancelling some of your cards.
Increase your cash reserve or emergency fund: –
A cash reserve set aside specifically for unforeseen expenses or other financial emergencies is referred to as “emergency funds.” Repairs to a car or home, medical expenses, or lost wages are a few frequent instances. Your ability to manage your finances effectively depends on having a cash reserve.
If you don’t have a cash reserve, you’ll be more inclined to use credit cards to cover unexpected home or car repairs. Allocating five to ten percent of your income to the fund is the next stage in creating your cash reserve. This is the absolute minimum that you should put into your account.
After that, gradually modify your goals in accordance with your monthly spending. Having three or six months’ worth of living expenses set aside is recommended by some financial experts. Naturally, your ability to save money will depend on your financial situation.
Diversify your income: –
Diversifying your income is earning money from two or more sources as instead of doing just one job.
This is one of the most critical abilities to learn if you want to be financially wise in 2023. One best strategy for financial literacy is income diversification, which assists families in avoiding the risks associated with having just one main source of income.
At the same time, sustainable economic growth and environmental practices are required for real income diversification.
Many people can benefit from the idea of income diversification, which can also help boost their overall earning potential.
Having multiple income streams can give you more opportunities to advance your skills.
Invest your Money: –
The characteristic of financially literate people is that they are great investors.
Any person who invests money in the hope of making a profit is considered an investor.
Investors depend on a variety of financial instruments to generate a rate of return and achieve crucial financial goals like saving for retirement, paying for a child’s school, or just collecting more wealth over time.
It takes time to become an investor, and there are many different types of investments to choose from. Some investors could pick very low-risk investments assets that would produce conservative gains, including certificates of deposit and specific bond products.
Some investors are more willing to increase their level of risk in an effort to increase their return. These investors might invest in stocks, Emerging markets or currencies, deal with a daily roller coaster of various factors.
If your goal is to be financially literate by 2023, investing is one of the best skills to learn. It’s a lifelong talent, so you’ll be able to use it well in future years.
Financial literacy can lead to several risks, such as a higher propensity to accumulate uncontrollable debt loads as a result of careless spending or a lack of long-term planning, poor credits, Bankruptcy, home foreclosure, and other financial difficulties may result from this.
Some advantages of Financial Education –
Better Money Management: Financial education helps people learn how to manage their money wisely. It teaches skills like budgeting, saving, and investing, which lead to better financial decisions and outcomes.
Protection against Scams: Financial education equips individuals with the skills to recognize and avoid financial scams. They learn to protect their personal information and make wise decisions when dealing with financial institutions or investments. This knowledge helps protect them from falling victim to fraud.
Increased Confidence: Understanding personal finance concepts boosts people’s confidence in handling their money. With financial education, individuals can navigate financial challenges and take control of their financial future.
Improved Financial Well-being: Financial education helps individuals improve their financial situation. It encourages healthy financial habits, reduces debt, and helps plan for long-term goals like buying a home or retirement. This leads to greater financial security and reduces money-related stress.
Informed Decision Making: Financial education empowers individuals to make informed choices about their finances. They learn about different financial products and understand the risks and benefits involved. This knowledge enables them to evaluate options carefully and choose the best financial products or services.
Better Entrepreneurship and Job Opportunities: Financial education provides the knowledge needed to manage business finances and make smart investment decisions. It helps aspiring entrepreneurs understand financial statements, cash flow management, and funding options, increasing their chances of success. Financial literacy also enhances employability by teaching valuable skills like budgeting and risk management.
Positive Economic Impact: A financially educated population contributes to the overall economic well-being of society. When individuals make wise financial choices, it leads to increased savings, investment, and economic growth. Financially literate individuals are also less reliant on social welfare programs, reducing the burden on government resources.
Improved Family Relationships: Financial education has a positive impact on families and communities. Individuals who receive financial education can pass on their knowledge to their children, promoting better financial habits and reducing generational poverty. It also improves communication and decision-making within families, reducing financial conflicts and strengthening relationships.
