“To be financially literate is to actively demonstrate a strong understanding and performance in money management.”
In today’s consumer-centric marketplace, we are regularly bombarded with life-related products and messages that are intended to make us spend. From securing a house to signing up for a new online course that will add value to our resumes, we have a lot to consider when it comes to where we put our money.
This is why the concept of financial literacy is of ever-growing importance in our time. To be financially literate is to actively demonstrate a strong understanding and performance in money management. It is an essential life skill that one is never too young to adopt. Financial literacy involves budgeting, investing, insurance, loans and interests, among many others.
To gain fluency in these areas of life, you must be well versed in topics such as the value of money, compound interest, credit score, annualised return and opportunity cost. These topics might seem heavy and intimidating, and it might seem easier to consult an expert that will handle these affairs for you. While it is not wrong to do that—in fact, it is encouraged—it is still crucial to have basic financial knowledge that will help you spend responsibly in everyday life.
A lack of financial skills will inevitably lead to financial illiteracy, which will then result in poor budgeting methods, higher expenditure than revenue, high accumulation of debt, poor credit score, becoming vulnerable to financial frauds and other negative consequences.
Here are 5 benefits of becoming financially smart:
Improved spending habits
It is vital to maintain a consistent and healthy spending pattern. Effective financial planning will set up a measurable financial plan. You can make a spreadsheet or checklist on all your expenses to come up with a solid plan for reducing unnecessary spending. This will help you track your expenses, save and spend money wisely.
Stay out of debt
Financial literacy will help you identify which loans and credit card usages are important and payable in the long run to avoid high amounts of debt. Good debt is paying interest for necessities to make a decent living such as buying a house or paying tuition fees. Bad debt means borrowing money for unnecessary expenses such as purchasing expensive gadgets and luxury items.
Smart investments
Having savings is important but if all your hard-earned money is sitting in a bank account, it can be a missed opportunity for greater returns. Investing is all about diversifying your financial portfolio and growing your assets by diverting your money into different channels (e.g. real estate, stocks, bonds, etc.) that will generate significant returns over time.
Keep yourself protected in a market that is constantly changing
The integration of technology in the economic landscape has turned it into a dynamic global marketplace that is constantly influenced by numerous marketplace participants. The foreign exchange rate, job employment opportunities, salary rate, economic wealth, national wealth and many other factors can be stable one day and be threatened the next day. It is important to be financially savvy to combat unpredictable times.
Have a good retirement plan
Financial literacy has a beneficial effect on retirement strategies; for instance, it will improve the reliability of welfare-related decisions. Financial education will help improve money management which will eventually improve pension decisions. For example, financial literacy can help you determine the right budget for your retirement plan. Once you are able to identify key expenditures in your life, you can effectively invest within your boundaries and gather the benefits of compounding.
A bonus tip: Job satisfaction can also be achieved through financial literacy. If you are well informed on how to thrive in the financial realm, you do not have to be tied to a conventional 9-5 desk job to make ends meet. Instead, you get to enjoy a work-life balance without compromising your earnings. We have such a position for you here! To learn more, get in touch with us now.