Financial literacy is highly recommended in today's era if you want to live a peaceful life without struggling for your daily needs.
Whether you have started your financial journey recently or worked for years, you must always be financially literate to secure your future and build a corpus for healthy living with your family.
COVID-19 outbreak across the globe has taught a meaningful lesson to everyone that managing your finances is highly recommended that can help you and your family during a monetary crisis. Most of you have even struggled to survive during the global pandemic.
All this brings you a big yet crucial question, i.e., are you financially literate?
If this question haunts you, don't worry, we are sharing with you the signs that you are financially literate.
Before moving to the specific points about financial literacy, you must know what financial literacy means.
WHAT IS THE MEANING OF FINANCIAL LITERACY?
Financial literacy is the knowledge that includes the ability to manage your money, create a budget, save for the future, and more. Becoming financially literate is essential to build wealth and secure your present and future simultaneously, without compromising your standard of living.
WHO NEEDS FINANCIAL LITERACY SKILLS?
Everyone who is making money via any income source needs financial literacy. From school-going students who earned pocket money to working professionals delivering their work in a 9-to-5 job must know about financial literacy and its components. Understanding financial concepts and how they can affect your life is essential to make your future prepared and plan your survival even when you are no more earning.
Budget is the basic necessity for your stress-free financial journey. In the long run, following your budget makes a big difference in what you spend and save. Most people find budgeting a big challenge as it's always tough to stick to your expense plan and ensure you save the rest for the future.
However, if you have ever dreamt of a financially-free future, budgeting is essential to your future planning. It will help you build wealth for the long run. With budgeting, you can track what you have earned, your necessities, and how much you can save to secure your future.
Know Your Minimum Investment Limit:
You are investing; that's great! But how much are you planning to settle for the future? This is a critical question everyone misses to ask themselves when running on their financial journey.
Some of you compromise your needs for high-end savings, which is never recommended. Life is uncertain; hence you should live it comfortably. It's good to save, but it's never a good idea to compromise today for your tomorrow.
This doesn't mean you end up saving and start enjoying your life with high-end expenses in the WANTS.
Start small, but don't stick to that. With each year, you get an appraisal or find a new income source that amplifies your income sources. Such an increase in income should add up to your saving.
You should always consult a financial advisor to know how much you should invest and what increase you can make with each year's growth.
Consistence in the investment is a key to financial freedom, but increasing your minimum investment is also crucial to ensure your future is secured within less time.
Checking Your Account Statements Regularly:
Keep track of your investment that will help you find your efforts and the outcome. If you are financially literate, you will regularly keep a check on all your bank account statements, credit card statements, investment statements, and other financial statements.
Moreover, a financially literate person also checks their credit score, which helps them to ensure there aren't any discrepancies in their credit score.
Know Power Of Compounding:
Most of you know that Albert Einstein called Compound Interest the eighth wonder of the world. He knows what compound interest can do for a common man, and financially literate people also know that.
A small chunk of your income that you save every month turns into multiple of your total savings. It means the power of compounding do wonders based on how long you let the money grow. Time plays a significant role in elevating your total wealth. In the long run, an amount can grow to double its value by just increasing the time by five years.
Know Inflation And Inflation Adjusted Profit:
In India, the equity market has the potential to deliver more than nearly 15% annual returns. However, the percentage can grow even more based on your equity knowledge and level of investment. However, you also know that inflation degrades the value of money.
Hence, a financially literate person always keeps track of the current inflation rate and calculates their profit cutting inflation from the total profit percentage.
E.g., you are getting growth of 15%, but the current marketing inflation rate is 6%. So, your actual inflation-equated growth rate will be 9%.
Build Multiple Income Sources:
Yes, you can build your wealth working in 9-to-5 work culture. However, you will only be able to save till you work. It means your investment will halt if you leave your job and plan to enjoy life for some time.
Hence, a financially literate always focuses on building multiple income sources. Building a rental asset, buying dividend stocks, freelancing, etc., are some of the common and trending options available for people to build an alternative income source.
During your early age of professional life, you can take big challenges and hence make some investments that can bestow results in the long run. Financially literate diversify their investment to ensure easy income even when they are no more working on a 9-to5 web.
Diversify Your Saving:
Putting all your eggs in one basket will be tough to take care of. Moreover, a single accident with the basket can hatch all your ends, resulting in zero profit. You can't even predict getting the principal amount back in such a situation.
Hence financially literate people never invest in a single category. Instead, they always focus on diversifying the investment that ensures their principal is saved. In case of a financial slowdown, some investments will grow while others will decrease, equating to the overall profit to some extent.
Equity funds, mutual funds, Hybrid funds, real estate, gold, Bonds, etc., are some of the commonly considered categories where financially smart people invest and ensure their money is diversified for significant growth.
WHY IS FINANCIAL LITERACY IMPORTANT?
Financial literacy is highly recommended in today's era, where everything is available online. There are multiple benefits of having financial literacy; some of them are listed below:
Control Your Money: With financial literacy, you get better control of your money and manage them properly. It will help you eliminate extra expenses that are nowhere necessary.
Better Debt Handling: Financially literate people always prefer skipping the debt. This helps them live a stress-free life and invest the loan amount into various investment opportunities.
Even if some of you own debts, financially literate people know the right way to clear them on time and handle it smartly.
Make Financial Goals: having a financial goal is half the work done towards achieving your goals. A financially educated person makes a financial goal early and makes a small investment towards the goal. Regardless of short-term or long-term goals, reaching them becomes easy for educated people.
Know & Stay Alert for Identity Frauds: Identity theft cases are common, and financially literate people know how to stay safe from such threats. They always keep track of the financial statements and take immediate action in case of any identity fraud.
If you have the knowledge mentioned above, you are under the category of financially literate people. However, if you aren't, this doesn't mean you can't build wealth. There are different ways/methods to grow your financial knowledge and build good wealth till you retire financially.
Read Books: The internet is flooded with numerous books that can help you become financially literate. You can get the eBook or a paperback copy and start reading to enhance your financial knowledge. Remember, the more you learn, the more you earn.
Read Financial Blogs and Online Publications: Financial experts have their digital presence where they share the market trends, updates, and crucial knowledge related to financial literacy. You shouldn’t miss the chance to get free knowledge from such blogs and publications.
Listen to Podcasts: Podcasts are an intelligent and efficient way to grab knowledge while working on other tasks simultaneously. You can listen to finance-related podcasts while driving, workout, and doing other activities.
Learn the Financial Maths: Financial math isn’t any specific subject that you need to mug up. Instead, it is the basic terms and calculations that can help you prepare a budget, manage your expenses and settle a significant savings for the future.
Now you have a clear vision of whether you are financially literate or not. If not, the above given options can help you bring a change in your current status and build financial knowledge from today. You should take it seriously and take financial decisions smartly.