Reduce Your Financial Burden by Being Financially Literate.

Financial Literacy - Definitions

1.      Financial literacy is concerned with the management of personal funds. It provides awareness about how to pay bills, how to obtain a loan, and repay it, and how to save and invest funds for the long term.

2.      Financial literacy is the capability to know and apply various kinds of financial skills. These skills include personal fund management, budgeting, saving, and investment. Effective use of financial skills helps individuals to attain self-sufficiency and financial stability. 

Importance of Financial Literacy

Financial literacy is as important for an individual, as blood in the body to survive. Poor financial literacy has a negative impact on short and long-term goals. In today’s era, it is important for everyone to know the skills of financial literacy in order to efficiently manage their funds.

             Poor financial literacy leads to mismanaging debts, misuse of funds, and lack of future preparation. Lack of financial literacy results in insolvency and a shortage of funds. Financial illiteracy makes it even difficult to manage funds for day-to-day expenses and it becomes so difficult to think to generate more wealth. Without proper knowledge and skills, it is not possible to be financially literate.

 Financial illiteracy is not the problem of an individual or a country, but the developing and developed countries. Consumers who do not use financial literacy skills effectively cannot face financial risks and financial difficulties.

            Financial literacy teaches individuals how to manage choices within limited available funds. This is very important to know and differentiate between needs and wants and then allocate funds accordingly. Funds must be allocated to meet the basic needs (e.g. food, shelter, clothes, education, and health) first. Now, the remaining funds should be wisely used, whether to move towards a luxury lifestyle that is not compulsory or to sacrifice these wants and to invest funds in various short and long-term securities. 

Tactics to Develop Financial Literacy Skills

Following are some practical strategies required to develop financial literacy skills:

 1.      Budgeting

You must have proper tracking of the total amount are receiving each month, and how much amount you used. The record can be kept on in an Excel Sheet or with the help of a budgeting app.

Particulars	$	$
Income (Jan 2021)		XXXX
Less: Expenses
Groceries	XXX
Rent Expense	XXX
School Fee	XXX
Utility Bills	XXX
Loan Installment	XXX
Total Expenses		(XXX)
Savings (Jan 2021)		XXX

The above format is an example of how you can track your income and expense for a specified period of time. If income is greater than expenses the balance is known as savings, and you can plan where to utilize this amount.

1.      Pay Bills in Time

Do not let the expense be your liability. Pay all the bills before due dates. You may use the facility of online banking or checking accounts. If you fail, to pay your bills in the month in which these become due then this amount will be your liability for the next month. So, pay all the expenses on time, whether you receive reminders or use bill payment apps.

 

2.      Debt Management

This is a very important strategy. If you borrowed money, then it should be your top priority to pay your debt, does not matter you need to decrease your spending. Find out the expenses, which are not important for a specific period of time, then divert this amount to pay your liabilities. If the installment or loan amount is greater, then negotiate with your creditor for repayment. It will help you not only to manage debt efficiently but to repay before maturity.

 

3.      Make Investment

Never invest your savings in a single investment portfolio, but prepare a diversified investment portfolio, in order to minimize risk. It is up to your needs and requirements that, which investment plan will be beneficial for you. So, you have to make decisions that, are you willing to invest in securities, commodities, retirement plans, children's educational plans, real estate, etc.?

 Conclusion

The above strategies will help you not only to develop but also to improve financial literacy skills. The developed financial literacy skills will have a positive impact on your life and future as well. So, reduce your financial burden by being financially literate.