Simple steps to financial literacy
Financial literacy may sound complicated but in simple terms, it means managing your money. It is crucial that we understand this important life skill, as financial illiteracy can lead to budget mismatch, overspending, and other problems which could have a negative impact on your finances.
We need to keep tabs on our spending habits, and a budget will help us to track our expenses and spend money more wisely. We must ensure that our income is greater than our expenses (simply put, our outgoings need to be less than our salary). The difference between salary and outgoings becomes our savings, and this simple equation is important for planning in the short, medium, and long term, and for our long-term financial security and independence.
It is never too late to start working towards financial literacy, and mastering this important life skill is a big step in the right direction towards financial freedom.
By keeping tabs on our budget, we should be able to generate saving funds for the short and the long terms. Discipline is important, every little bit helps so do try to keep tabs on that income-expenses equation, and try to put a little something away as often as possible. From emergency funds through to education and more, there are many reasons for saving money.
It is important to try and avoid debt – spending money that is not your own. Sometimes we need to go into debt – if borrowing for something essential that we cannot afford at the present time. But it is important to avoid bad debt (borrowing for the unnecessary expense) as much as possible. Credit cards and loans are likely to cost more in the long run as generally, we have to pay back the interest on the loan in addition to the money borrowed. Always take time to read the terms and conditions of a loan.
Instead of leaving money sitting in a bank account, it is possible to invest – to generate and grow wealth for a brighter future. From National Bonds through to popular Filipino funds such as Pag-IBIG, there are many investment options out there that will help to grow wealth. The aim of the investment is to generate significant returns over time, with one eye on the future.
Improving your financial skills
There are many ways we can improve our financial skills. Creating a budget is an important first step, as it will enable you to track income and expenses and cut down on unnecessary outlays on a monthly basis. With outgoings, it is important to ensure we pay our bills promptly. Payment reminders can be set up to stay on top of monthly bills. Similarly, if you do have debts, either create a debt reduction plan or manage the situation by reducing spending and increasing your repayments. A budget will help you to save systematically, and small savings can be transformed into investments with the right planning.