The Importance of Financial Literacy

Brigi Heaven's Daughter
Apr 18, 2023
4 min read

Updated: Apr 21, 2023

Gaining independence from one's finances and building wealth by investing in assets, real estate, starting and owning businesses, and increasing one's financial intelligence are all important steps toward achieving these goals.

Benefits of Financial Literacy

The ability of individuals to make more informed choices is one of the many advantages that come from having a solid understanding of financial matters. To be more specific, having a solid understanding of financial concepts is essential for a variety of reasons.

Knowledge of money matters can help avoid devastating errors.

Floating rate loans exhibit variable interest rates on a monthly basis, whereas conventional individual retirement account (IRA) contributions are subject to withdrawal restrictions until the time of retirement. Financial decisions that may appear harmless at first glance can potentially have enduring consequences that result in financial losses or alter an individual's life plans. The acquisition of financial literacy enables individuals to prevent errors in managing their personal finances.

Financial literacy prepares people for emergencies:

The gaining of financial literacy skills, such as saving and emergency preparedness, will provide individuals with the necessary tools to navigate uncertain financial circumstances. The financial effects of job loss or unexpected costs can be major. However, individuals can reduce the impact by actively applying their financial literacy skills to prepare for such emergencies.

The learning of financial literacy will assist individuals in achieving their goals.

Through improved knowledge of budgeting and saving techniques, individuals can develop strategies that establish clear objectives, foster financial responsibility, and pave the way for accomplishing seemingly impossible aspirations. Despite the current cost of a desired goal, individuals can strategize and enhance their likelihood of achieving it in the future.

Enhancing Financial Literacy

Strategies to Improve Financial Literacy Skills

To improve your personal finances, you need to learn and practice budgeting, debt management, and credit and investment products. It's never too late to start good financial habits.

Here are several practical strategies to consider.

Set a budget: Track monthly income and expenses in Excel, paper, or a budgeting app. Your budget should include income (paychecks, investments, alimony), fixed expenses (rent/mortgage, utilities, loan payments), discretionary spending (nonessentials like eating out, shopping, and travel), and savings.

Pay yourself first: This reverse budgeting strategy involves selecting a savings goal, such as paying for higher education, deciding how much you want to contribute toward it each month, and setting that amount aside before dividing up the rest of your expenses.

Keep track of your monthly bills and make sure your payments are always received on time. Consider using automatic debits from your checking account or bill-pay apps, as well as signing up for payment reminders (via email, phone, or text).

How Do I Become Financially Literate?

Being financially literate at a young age provides an individual with the tools and resources necessary to be financially secure later in life. A lack of financial literacy can lead to a variety of pitfalls, such as amassing unsustainable debt burdens as a result of poor spending decisions or a lack of long-term planning. This can result in poor credit, bankruptcy, home foreclosure, or other negative consequences.

Make Money Work For You

Make your money work for you.

People who are broke stay broke by spending all of their money. Middle-class people maintain their middle-class status by saving all of their money. Rich people keep their wealth by working for it.

If you work for a living, you will eventually run out of time to earn enough money.

The most common issue is that people are unwilling to learn about money. They study their subjects, work, get paid, and die.

Purchase tangible assets such as stocks, bonds, and real estate.

Money without financial literacy is no money

Stay out of my business, would you?

Thinking about starting your own company can be very nerve-wracking. But instead of just working at your main job, why not start a side business? Over time, the insignificant things can snowball into significant problems.

When you are running your own company, you should direct your attention to the assets column rather than the income statements alone.

Don't let the prospect of running your own company make you feel anxious. Buying stocks and nothing more can be considered business activity. Other types of assets include the following:

Royalty Bonds for Real Estate Investments

Once a dollar goes into your assets column, never let it come out. You should never use the money you've worked so hard to earn to reward yourself with luxuries. Instead, use it to buy assets, and then use the income those assets generate to buy the luxuries you want.

Power of Corporations

The more you work, the more you have to pay the government.

A corporation is the richest person's best kept secret. They use it to avoid paying unnecessary taxes. But what many people fail to realize is that the corporation is not a thing. It's just a file folder containing some legal documents.

It was popular because a corporation's income tax rate is lower than individual income tax rates. Furthermore, a corporation may pay certain expenses with pre-tax dollars.

Your mind is your most valuable asset.

Your wealth depends on your risk-taking. The poor and middle class want to play it safe with money. Study hard, get a good job, and work hard is their message.

The rich play it differently. They become more financially savvy and riskier. Instead of worrying about raises, they make millions.

Teach your mind to learn and adapt. You'll fall behind if you stick to old ideas. Old ideas only hurt. Invest in the best asset you can control.

Overcome your obstacles

There are five primary reasons why people continue to struggle financially:

Fear

Cynicism

Laziness

Bad habits

Arrogance

People never like losing money. There is no such thing as a wealthy person who has never experienced financial hardship. However, there are a lot of poor people who have never come close to losing a single penny. People make choices because they are afraid. Broke people are afraid of risk. On the other hand, wealthy people are more willing to take chances. They are aware of the fact that taking risks is the only way to find opportunities.

After reading Rich Dad Poor Dad, my perspective regarding money had a complete transformation. Your level of education has no bearing on how much money you make. If a person is unable to comprehend the dynamics of the financial system, he will never achieve financial success. If a worker ends up unable to perform his job, he will no longer receive an income. An investor made smart use of his debt by putting it to work for him.

I invite you to read RichDad Poor Dad