Financial literacy through financial freedom? How do you answer this question? Financial literacy is the ability to make sound financial decisions and manage your finances to develop financially as an individual, using a combination of knowledge and a set of skills like budgeting, investing, buying assets, or paying off debts. Financial literacy is a life-saving skill one must learn to be financially independent.
Financial education allows you to be confident to make better decisions and generate more income. To prosper in life and become financially independent, it is extremely important for you to be financially literate so you no longer have to depend on a job, a company, or government to take care of your finances.
Unfortunately, schools don’t teach students about money-making techniques or finance management which is why despite being educated, around 70% of the world population is financially illiterate which becomes a primary reason for poverty and a financially struggling youth.
A highly skilled person with several qualifications may have a fairly high salary but a financially literate person has an impressive bank statement and loads of assets to back it up. This is the power of financial literacy, it doesn’t look for qualifications and degrees, the only thing that matters is your money-making capacity and the ability to make excellent financial decisions.
A strong financial foundation can also help you plan for an early retirement, education, marriage, or even buying liabilities like a car or a house.
Here are some ways to achieve financial freedom…
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If you feel lost as to where your money is going, start tracking your expenses in order to scan your spending habits. This allows you to decide what unnecessary expenses you can cut down on in the future. This mindful process can help you prioritize money management.
Budgeting will make you feel regulated over your finances. You will prioritize your income, watch the way you spend it and know when you have to pause. It implements an easy-to-follow, solid strategy which offers you the ability to plan and prepare for the future. It is an important method to improve your overall financial outlook.
• The 50/30/20 rule
The 50/30/20 rule is an easy and effective way to start off with. The fundamental rule is to split your monthly after-tax income into three types of expenditures: 50% for needs, 30% for wants, and 20% for savings, or paying off debt.
Spend 50 percent of your after-tax income on needs or necessities like rent, food, bills, educational expenses, etc
Spend 30 percent on your wants like holiday trips, shopping, dining, gym, etc.
Use the rest 20 percent to save (and invest) and/or pay off your debts.
This rule can help you create a better financial plan and track your expenses.
The first step is to make the maximum possible amount of money from a source like your job that pays you regularly and cut down your expenses for time being and to stop spending on liabilities so as to avoid financial leakage. Everyone has a different approach of seeing this, it depends on your preferences and financial goals as to how much you are willing to save/can save.
Savings also help in creating an emergency fund, which is extremely important as life is unpredictable. There may be times when you might be dealing with huge expenses that may throw off your bank balance. It is important to always have your emergency funds fully stocked up in order to avoid taking huge loans and spend the rest of your life paying them back.
If you’re looking forward to opening a savings account, head over to our post: https://gofinanceliterate.com/savings-account-for-teenagers/
Taking a step towards financial freedom, you need to first keep a check on your bills, expenditures, and credit score. Research plays a crucial role as it allows you to make better financial decisions and avoid scams. Firstly, you need to decide how much you’re willing to start with, and where you are going to start from. If you’re looking forward to starting a business or investing in stocks, you need to speak to a financial advisor, read articles about it on the internet, or watch videos online and update yourself with daily news.
You need to learn the rules of money making before you actually start to make money, i.e. you need to learn how money works, before you make the money work for you.
• Start small
The man who moves a mountain begins by carrying away small stones.Confucius
Every successful person that you hear about today has started with very little. This works exactly like a tiny seed when nurtured, grows into a gigantic tree. The only way you can make your small savings grow into a money-making tree is by understanding the financial concepts and growing step by step.
Start paying off your loan/debts and taxes first so you don’t have to worry about it at the end of the month when your salary is almost flushed out. Taking a loan is not a bad idea if you know how to use it. When you take a loan, make sure you spend it to generate more money. If you’re financially educated, you can confidently take the risk of taking a loan and starting up a business. By making smart financial decisions, you can grow your business to earn lucrative profits and also pay off your debts and loans. When you take a loan, you should always study about different bank policies and interest rates which can help you in the long run.
The best investment is to invest in yourself. Your brain is your greatest asset that has the ability to generate huge amounts of wealth. There are so many ways to invest your money, it is extremely important to understand and research before you invest.
Use your money to make more money as you can invest in stocks, real estate, metals like gold, silver, starting up your own business, or buying an asset that will ultimately generate income even when you’re not working (passive income).
A lot of people have a very wrong perception about assets, as they consider every valuable thing, that can be sold, as an asset. But an asset is something that generates income and puts money directly into your pocket.
Financial literacy isn’t a luxury, it’s a requirement. Understanding the control of money will make you remain in charge of your finances. In practice, with good financial literacy, you’ll be relaxed and secure with money management to the point that you can concentrate your attention elsewhere: on your interests, friends and family, and aspects of your life that money can’t afford.