Financial literacy is something many of us desperately need. It is obvious when you see how many people struggle to manage their personal finances, control debt or try to understand their investments. Fortunately, there are ways to learn what you need to do to be more successful, whether you want to pay off debt or save more for retirement. Here are four ways you can improve your financial literacy.
We’re not going to tell you to pick up the book by a guru on a late-night TV show selling get-rich-quick-schemes. Instead, start reading magazines and newspapers geared toward business owners, the wealthy, and those who obviously want to know more about money. The financial section of your favourite newspaper is a good place to look, too.
If you need to save money, frugal living blogs are invaluable. The financial news or “money” tab on many news websites is another good resource. The more sources you can access, the better rounded your financial education will be.
Understand the Difference between Assets and Liabilities
Assets are things that hold value or go up in value. Liabilities are things that cost you money or go down in value. Don’t buy furniture, a car or other items that go down in value and call it an investment, unless it’s an antique or a collectible.
If you only have so much money, invest in assets like your retirement pension plan, your emergency fund or classes that increase your employment opportunities. If you have a choice between a holiday and finance courses, pay for the finance course. You’ll learn how to manage money better, get more from your investments or reduce the fees you’re paying for various services. If you don’t know where to start, you can look here for courses where you’ll find over a thousand different options to consider.
Such knowledge pays off over a lifetime, whereas a nice holiday in France may give you a few pleasant memories. Then there’s the fact that if you turn your financial situation around, you’ll be able to afford more trips without worrying when the bills come due.
Use Financial Management Tools
A good way to learn about money is to start managing it yourself. Whether you use installed software on your computer, an app on your phone or a website that links to all of your financial accounts, you’ll start to learn a lot by putting together a real-time picture of your finances.
How much money do you really have in savings? How much are you spending per month in every major category? What is the rate of return on your investments, and what are you paying in interest on your credit cards? A side benefit of collecting all of the financial information in one place is that you gain better control over your money. You’re less likely to pay bills late when all the accounts are linked and you can pay bills at the touch of a button.
The reporting functions let you know when bills come due so that you can arrange to pay them without going into debt, and it becomes easier to move money to savings accounts of various types. If your financial management software lacks these built-in tools, you can buy a financial calculator or search for websites that can do this number-crunching for you.
You can run reports to see how much you’re spending on frivolous or expensive categories; then you have the hard data to better control your spending. How much did you really spend on those regular little splurges? What does this liability really cost you per year?
Many of these tools let you run the numbers to see how much you could save by prepaying a mortgage or driving your car another couple of years. Or, you’ll learn how much more you pay in interest over the life of the loan if you opt for that slightly lower monthly payment.
Leverage Your Network
Reading, self-education, and a few classes may not be enough for your situation. However, this will lay the foundation for making wise decisions when you do need to consult with an expert. When you need to consult with a certified financial advisor or tax accountant, leverage your network to get recommendations.
However, it is a mistake to think that you are obligated to put your financial future in the hands of a friend or a stranger because they were recommended by someone you care about. Always vet experts before you take their advice.
However, if you can find a business mentor or financial advisor that has a good reputation, utilise their knowledge. You may find a wealth of information available in casual conversations.
Having a better understanding of personal finances can make the difference between swimming in debt and living one month to the next to thriving and being able to reach financial independence.