Financial Literacy is the convergence of your monthly finances, credit, and debt management knowledge that is necessary to make financially responsible decisions – choices that are integral to our everyday lives.
Despite Financial Literacy being integral to functioning in the 21st century, very few consumers have an understanding of how finance and credit works. Ultimately this lack of understanding can lead to poor financial decisions.
But it’s not too late, we put together a short article that will get you started on your journey to financial understanding.
The Basics of Budgeting
One of the most fundamental aspects of maintaining your finances is creating and maintaining a budget.
Without following a budget, it is difficult to keep track of where all your money is coming from and where it is going. You aren’t holding yourself accountable for your spending habits. Mastering the basics of budgeting is a vital part in your financial well-being.
You don’t have to be great at numbers to have a successful budget, there are many tools out there to help you create and maintain a budget.
It is important to understand the different types of interest rates, like compound or fixed interest.
This understanding not only helps you save but could mean the difference between borrowing a small amount of money and having to pay it over a much longer period than necessary or applying for credit that can help you during difficult times and won’t lead to financial ruination.
This understanding can impact your finances more than you are likely to realize.
The Importance of Saving
Saving is an important aspect of maintaining a healthy financial lifestyle. Furthermore, we save because we can’t predict the future and it provides you a safety net in case of an emergency.
There is a number of reasons why we should save:
- Emergency cushion – Saving provides you with a reserve that will help prevent you from going into debt in order to pay for your necessities.
- Retirement – If you intend to retire someday you need to start thinking about savings and/or investments that will take the place of the income that you will no longer receive
- Average Life Expectancy – With more advances in medicine and public health, people are now living longer and needing more money to get by.
- Volatility of UIF – Even though UIF exists to help support us in the unfortunate scenario of job loss, we cannot depend on it to be the primary source of income in this instance. Instead it should be treated as a supplement to your savings in such a scenario
- Education – The costs for education are rising every year and it’s getting tougher to meet these demands
The Good and Bad of Credit Score
In a nutshell, it is much easier to lose credit than to gain it. Many people don’t realise how easy it is to not only ruin but also to regain a good credit score.
Credit is incredibly useful when it’s used and managed correctly. We explain Credit Scores in more detail here.
Identity Theft Issues & Safety
Since everything is digital in the 21st century and just about everyone has shopped online, your financial information is automatically more vulnerable to fraud.
Understanding this can help you combat financial fraud by using password protection and limiting the amount of information you share online. Doing this can be the key to maintaining safe bank accounts.
While these methods are not fool proof it’s still important to safeguard your finances as best you can to avoid the threats that exist in the online world.