What Is Financial Literacy?
Financial literacy can be defined as being educated about money and finance, specially in an individual’s personal finances. Being financially literate means that you have a basic understanding of skills like budgeting, taxes, debt, spending, saving strategies, how interest rates work and passive versus active income etc. It not like being an expert, it makes you confident to make right financial decisions and being able to raise right questions when required.
Financial literacy, Why does it matter to everyone?Now a days there are plenty of products in the market(like Credit Card, loans, money making ideas etc.) they attract everyone and make them more financial vulnerable, that leads them into debt due to lack of financial literacy. Even if you want to invest your money, you can’t understand that where to invest without financial literacy. So it is very important to be financially educated to use all the financial instruments effectively.
Financial literacy covers skills
1. BudgetingIt is one of the basic skills of personal finance to make a budget and stick to it. It is a terrible way to manage your personal finance without a budget. A budget tells you where, when, why and how much to or to not spend your money. A budget is necessary to control your money instead of just watching it go away.
Budget is a list of all of your income and expenses. You need to monitor spending and work to stay on track every month. Sometimes unexpected expenses will pop up, and it takes skill to find ways to spend less in other areas to recover and stick to the budget.
2. Understanding of Needs vs. Wants.Separating needs from wants is one of the best personal finance skills. There is almost no limit to bigger, better, and newer stuff that you could decide to buy. The best way to make spending decisions is to become disciplined at distinguishing needs from wants. So when it comes to buy a new thing, reconsider that thought. Ask yourself that what impact it makes to your lifestyle. This should be your thought process with all material items in your life. If your current item still works, then you should put it in the “want” category, and come up with a savings plan to buy it. You can use the thinking about the consequences of not buying something as a tool to distinguish needs from wants.
3. How different types of interest rates are work?A little difference in Interest rates could make a big difference over the course of your repayment plan. When it comes to any kind of loan (vehicle, mortgage, etc.) or credit card, you should check the interest rates before you ever apply. High interest rates could mean that you pay double or triple what your original cost would have been. So the Understanding of interest rates is also an important personal finance skill.
4. Creating an emergency fund.Life is full of surprises but you can be better prepared to handle them by building an emergency fund. An emergency fund could be your financial safety net. So it’s important to “pay yourself first” to ensure money is set aside for unexpected expenses such as medical bills, a big car repair etc.
5. Using credit cards responsibly.Credit cards if not handled responsibly, can lead you to a big debt. On the other side a credit card can be a very helpful for managing money while using it in a responsible manner.
1. How to use Credit Card effectively
2. Interest on credit card how to calculate
3. Interest free period of Credit Cards
4. How to choose Credit Card
5. what is Annual Percentage Rate
6. Know different types of taxes.Educate yourself about taxes because you have to aware of different types of taxes that can be paid by you. How to minimize the taxes is also important to maximize your investment returns. There are different types of Investments that gives tax benefits. So you have to know about taxes.
HRA exemption rules
7. Know the different types of Investments.If you want to invest your money then it very important to know the which type of Investments suits to you, so you can maximize your savings. Learn basics of investments like mutual fund, PPF, FD and savings accounts etc. And how the handle your money and what returns they can give you if you invest money with them. What are the risks involved in your Investment. Know how long it takes to achieve your goals.
Beginners Guide To Mutual Fund
Direct and regular mutual fund
what is Asset Management Company’
Becoming financially literate is not an easy work, but if you achieve, it can ease your life.