Four Basic Principles of Financial Literacy
The key to financial literacy is to gain wealth, keep it and use it to improve your life. It really is that simple. Of course, following through with those plans can be challenging in real life, but following that plan will set you on the path of financial independence and wellness.
1. Acquiring Money
When we think of earning money, many people think about earning money from a job as the best or quickest way of acquiring money. But trading time for money is only one of many ways to acquire money. Here is a list of ways you can acquire money listed in priority order:
1. Investing
Far too little time is spent on investing to acquire money. That may be due to the many different and, at times, complex methods of investing. But investing does not need to be complicated. And since investing doesn’t require you to trade time for money, it has the added benefit of being able to help you acquire money even when you sleep.
If you are unsure about how to start investing, the first thing you need to do is:
- Make sure you are living off less than you are making. That will ensure you have the funds to invest.
- Make sure you are seeking information and using trusted advisors. Investing requires some knowledge. Seek out the answers you need, don’t let the lack of information be a hurtle.
- Do it now. Investing requires taking on some risk, but the only way to overcome the risk is to invest for the long term. Short-term investing has the most significant risks. The more time you can allow your investments to grow, the more you minimize your overall risk.
2. Earning
Most folks are aware of earning. So it isn’t necessary to dive too deep into this concept. However, the one thing I do want to make sure you are aware of is that there are methods of earning money that does not trade time for money. For example, developing an online course that is recorded once and shown repeatedly can make you money, yet you do not need to show up every time your students sign up. It is an important point to note since your time is a limited resource, and finding ways to earn money that does not require additional time is one way to maximize your earnings.
3. Borrowing
Some may argue that borrowing should not be on this list, but what happens when you borrow money? You get money. Yes, you have to pay it back, but that doesn’t negate the fact that you now have money you didn’t have before.
Borrowing money can be a tricky skill to master. While some financial experts out there will warn you against ever borrowing money, most folks recognize that borrowing is an essential part of reaching your financial goals. For example, if you dream of owning a home, unless you live in the 1950s, saving up the total value of a home may be challenging without using some debt.
The best rule to follow when borrowing is to remember the money you borrow should put you in a better position to pay the money back. So borrowing to start a business or get your education to become more employable is more advisable than borrowing to pay for consumables like clothing or food.
2. Keeping Your Money Safe
There is little value in having money that someone could wipe out from underneath you. Therefore, to maximize the value of your wealth, you must ensure you keep it safe and protected. There are two essential methods to achieve this.
1. Keep Your Money in a Bank. Many people do not feel comfortable with the banking system. But banking, rather than going 100% cashless, tends to be a cheaper option. Keeping your money in a bank also provides security to your funds. You do not need to worry about someone accessing your savings since banks are secured and insured.
2. Insure Your Wealth. Home insurance, car insurance, and life insurance are all ways to ensure that you could be made whole if the unforced were to happen.
3. Planning
Fail to plan and plan to fail. It is a cliche, but it is so true.
Without a plan to reach your financial goals, you will likely take longer to get there or not get there at all.
Using a budget is a fantastic way to help you plan out your expenses to ensure you stay on track financially.
Additionally, have a plan for when you hope to reach your financial goals. Working and putting money in the bank is no way to plan for retirement. Instead, have a goal in mind and work backward to find out how to reach what you desire. Speak with a financial planner if you need to, but have a plan in place.
4. Using Money
You wouldn’t think anyone would need to be told how to use their money, but how you use it will determine how and when you reach your financial goals. It is one thing to have a budget, but it is a different thing to live within it.
Lastly, all the money in the world will not make you happy if you feel like you still want more. Therefore, we must learn how to live in peace with what we have. While this isn’t exactly using money, this is the power of not using your money.
To reach financial well-being, you will need to practice some financial restraint. Your desires will grow as your income grow unless you can appreciate what you have and be able to identify when and what is enough. It is only in being able to master this that you will be able to ensure your wealth has the potential to grow.
Conclusion
In conclusion, financial literacy is an important skill to have to manage your money effectively. By following the four basic principles of financial literacy, you can set yourself up for success in your financial journey. Remember to acquire money wisely, protect what you have, spend cautiously, and plan for the future. With these tools, you can take control of your finances and achieve your financial goals.
