Truth be told, gaining financial power in a clime of ours gives one’s reckless confidence which can be attributed to financial intelligence or financial literacy.
We all hear and know about different types of Intelligence’s like Artificial intelligence, Emotional Intelligence, Business intelligence or Digital intelligence, but we must have rarely heard about Financial Intelligence. Yes, Financial intelligence or Financial literacy is as important or I would say more important than any other Intelligence because almost 80% of a person’s difficulty is directly or indirectly related to money.
The pivotal reason I am writing this blog is that I find so many people struggling and trying to be at par with Money. You must have heard from a close friend or colleagues saying “It’s month-end I’m Broke”. The major reason people out there struggle with money is the lack of Financial Literacy they have in managing it. It is hard currency this needed to be managed with hard hands.
For this, I will not be writing anything deep or technical about money, but the financial rules to apply to be financially literate and help to improve your dwindling financial condition.
Stay with me here as you need all your focus to understand the following,
- Knowing the difference between an Asset & a Liability:
Major people fail to understand the important difference between an Asset & Liability and later end up having Liabilities thinking of them as Asset. Of course, you and I know that.
Let me put the definition of both of these in simple words,
An Asset is anything that puts money in your pocket. For example, Your Skills, which earns you money every month in the form of a job is an asset.
A Liability is that which takes away money from your pocket. For example, your smartphone, which takes money every month from you in terms of call cards or airtimes for the device.
Many of us fail to understand the difference between Asset and Liability and often end up buying many liabilities taking them as an asset. We take our car or motorbike as an asset, but in reality, they are the liabilities that we own as they take money from us in the form of maintenance, fuel, loan interests, etc and also the value of these liabilities decreases the moment you and I start using.
So now as you know the difference between both of them, list down all the Assets and Liabilities that you have and cut down the unwanted liabilities that you own. Do it now.
- Avoid Debt and be contented:
Yes, the fastest way to be financially independent is by avoiding the debt you have. Pay off all the loans, and any other debt that you owe as soon as possible. The sooner you pay off your debt the better, as you will have more money with you to save and invest.
Let me share with you a personal observation about ATM cards: Sometimes I do that. I would say “Avoid Them”. Yes, avoid them, because they are one of the major reasons people always remain under debt. The offers given by ATM Card and Online Retailers give are very tempting that major people ending up spending on things which they actually would have not bought if they did not have an ATM card. Major ATM card users end up buying things like the latest gadgets, fashion and other things.
“Rather than paying interest, choose to earn interest.”
- Track your Spending:
The Best and Simplest way you cut down your unwanted expenses is by keeping a track of your spending habits. Yes, you need to track even the smallest amount that you spend during your day.
The simplest way to do is by writing down your everyday expenses into a diary, or you can even use one of the various expense manager applications like notepad that are available on the app store.
By tracking your expenses you will know how you spent your money throughout the week, month or year and cut out all the excessive expenses that you must have made in the form of unnecessary shopping, expensive dinners or your habits.
Note, I ain’t saying you shouldn’t have fun but not unnecessary ones.
- Start Saving:
How much we spend isn’t important but how much we keep before spending. Yes, the more you keep before you spend will help you reach your financial goals. Have a financial target every month. Say to yourself, this is the amount I want to close the month with.
The next question everyone has is how to save and how much to save. The more you save the better. You can save 40% of your income and use the rest 60% for your monthly expenses. I would recommend saving a minimum of 20% and not less than that of whatever you earn.
The only way to survive your month from the remaining amount is to Budget, Budget and Budget Harder, start cooking at home, cut down all the unpopular expenses and you will see in a few months it will become a habit of saving first and then spending.
Investment is better than saving. The former gives you returns while the latter remains stagnant and perhaps below value if there is the devaluation of the currency in the stock market.
A quick question. When to invest? Start investing when you have cleared all your high-interest debt, Simple!.
Another question. Where to invest? There are several options where you can save depending on how much risk you are willing to take, like Real Estate, Digital Currently, Stocks, Mutual Funds, Bonds, etc.
The only important and key rule everyone needs to follow is “Invest money only in things that you understand”, don’t just start investing by hearing it from someone you know, I know so many people investing in crypto when they don’t even know what it means. Read about where you planning to invest, try understanding the risk, returns, the nature of business and all the other aspects related to it.
These are the few basic things that are related to Financial Literacy. I am not any financial expert but have tried expressing my understanding of money and how anyone can improve their financial condition following the above ordinances.
Right from today the first thing you need to do is start tracking or writing down your expenses because when you track is when you understand where you have spent unwanted. Make this a habit and you will see in a few months you will start getting rid of all your unwanted expenses which will automatically improve your financial condition.
So start following the above principles and see the difference, I hope it is easy to understand and help you improve your financial condition and what other principles can you add to this list that I may have not mentioned?
If you think this blog post was beneficial to you, please share it with a friend struggling with finance.