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“It is often said that the ultimate goal in a career is to earn money” but is this statement entirely true? Merely earning money cannot guarantee a secured financial future.
What Is Financial Literacy?
To start with the very basics, Financial literacy refers to the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. Financial literacy is the foundation of your relationship with money, and it is a life-long journey of learning.
Who Needs to Learn This Concept?
In the era of finance and economics, each and every person whether a student or an adult should have some basic knowledge about financial literacy. It is imperative in today's time that one should know the art of managing money if not master in the field!
Why?
It helps in effective money management, making financial decisions, and achieving financial stability.
Financial literacy provides in depth knowledge of financial education and various strategies that are indispensable for financial growth and success.
It enables one to be debt free by adopting the best debt strategies.
The 4 Components of Financial Literacy
Investing
Instead of holding the money idle in a bank account, one can divert it to financial instruments. Investing is all about generating and growing wealth to enjoy a secure and happy future.
Saving
Saving ensures financial wellness, a secure present and an uncompromised future. One can build wealth in the long term through proper financial planning.
Debt
Debt is nothing but one’s borrowing. One is spending money that isn’t theirs. For example, if an individual borrows money from the bank or uses a credit card or takes a short term loan. All these become part of the debt.
Mostly, debt is perceived in a negative aspect. Which makes understanding debt very important. However, not everyone can buy a house or car or pay tuition fees with cash. In such scenarios borrowing or taking a loan is the only way out. But the most important thing is to differentiate between good debt and bad debt. Also, one should always aim to avoid bad debt as much as possible. This is the basics of debt management.
Good debt is borrowing money for things that are necessary for making a living.
Budgeting
Budgeting is an essential life skill that helps in acquiring financial knowledge for planning and managing money. It is one of the most important components of financial literacy. It is necessary to keep a tab on one’s spending habits.
How Can You Improve Your Skills in This Area?
Create a Budget:
One should start tracking their income and expenses on a monthly basis. This will help in segregating necessary and unnecessary expenses.
Manage Bills
One has to ensure they are paying bills promptly. Choose auto debit options for recurring bills from the bank account. Set up payment reminders to stay on top of monthly bill payments.
Manage Debt
Manage debt by reducing spending and increasing repayments. Have a debt reduction plan that will help in reducing the liability. For example, paying off loans with high interest rates first.
Start Saving and Investing
Savings is not difficult when it is done systematically. After proper budgeting, all one has to do is identify financial goals and put their financial resources to optimal use.
To conclude, it is important not only to earn money but know your money.
These were some of the basics to help you get an idea about Financial literacy.
Written by - Kavya Sareen
Edited By- Gunika Manchanda
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