Learning financial literacy from scratch: 4 secrets
We all want to live happily and prosperously. So that we don’t have to get up every morning at dawn, and rush to work that we can’t stand. And spend more time with family and friends. One step towards this is achieving financial freedom. And it is not conceivable without the development of financial literacy. So what is financial literacy, where to start learning on your own?
What is financial literacy
Financial literacy is a fairly hackneyed topic to consider. Many books, articles and reviews have already been written on this topic. Even at the government level, in some countries, this topic is being discussed.
In our rapidly changing time, which provides great financial opportunities, it is important not to get lost in the ocean of information and learn how to make timely and competent financial decisions. After all, our well-being and prosperity depend on it. This is where financial literacy can help us.
Let’s look at the basics of the concept of financial culture. What and how we need to do to be financially literate people.
Financial literacy, in simple words, is the ability to make correct, balanced financial decisions and avoid unreasonable, "stupid" loss of money.
A financially literate person is able to make most financial decisions independently. Starting from choosing when to buy a vacation package and what resources to use for this, to drawing up your own retirement plan.
The process of developing financial literacy is a long and ongoing process. In our fast-paced age, new financial instruments, opportunities and, unfortunately, various illegal schemes for taking money from the population are constantly appearing. Therefore, you need to develop your financial culture, as well as teach this to children.
The concept of financial literacy is not about how to buy a phone of the latest model with a salary of 30,000. Financial literacy is about how to create sufficient equity capital to live for your own pleasure and for the benefit of others, how to use the opportunities provided by financial institutions for your own benefit, how to live with dignity, not only here and now, but also in the future. In general, this is about how to handle and interact with money correctly and, as a result, gain wealth and financial freedom.
4 steps to your financial dream
The concept of wealth is different for each person. Some people think that wealth is measured by the amount of money one has. Others believe that wealth is measured by the number of luxury items they own. Therefore, they constantly buy expensive cars, mansions and other luxury items. We propose to measure wealth by the amount of time that you can spend on yourself and your family, while not thinking about “daily bread".
The concept of wealth is inextricably linked with the concept of financial well-being. Financial well-being is such a state in our life when we can live for our own pleasure and not worry about money to meet our needs. There are four stages of financial well-being.
Stage 1: Financial security. At this stage, we are able to satisfy our basic needs without working for it. These needs include housing, a minimum food allowance, public transportation, and medical services, for example. Everyone has the right to determine the scope of their basic needs.
At the same stage, we need to form our own “cushion” of financial security. The size of which is usually equal to 3-6 total monthly expenses.
Stage 2: Financial wealth. At this stage, we are able not only to cover our basic needs, but also to allow a little more. For example, go to a restaurant several times or buy clothes you like. This is all provided that we do not work anywhere.
Stage 3: Financial independence – this stage is characterized by the fact that we do not need to work at all to maintain our current lifestyle. That is, all your monthly expenses are covered by your passive income.
Stage 4: Financial Freedom – At this stage, not only are we able to cover all our daily expenses, but we still have enough money left to afford luxury goods or travel. Live where we want and how.
The Other Side of Finance
Before you begin your journey into the world of finance, decide what money means to you. In their attitude to money, people are divided into two camps. Some consider them evil, that is, they have a negative attitude. After all, money causes envy, permissiveness, greed. They are constantly lacking and, in general, they corrupt.
Others believe that money is good, that is, a positive attitude. After all, they allow you to help others, travel, do what you love, and so on. What is your attitude towards money? What do you associate them with?
Money itself is neutral and only our attitude towards it gives money power.
If you have negative associations in relation to money, then they must be changed to positive ones. After all, if we are afraid of “losing money” (negative association), for example, then all our actions, on a subconscious level, will be subject to this association. We will think for a long time and doubt the investment opportunity that has arisen, instead of making the necessary calculations and making a reasoned decision.
Money affects every area of our life. A financially literate person knows that by paying more attention to finances, he changes his life for the better. The main thing is not to go to extremes.
Money can’t solve all our problems, but having it gives us additional opportunities to solve problems.
What else distinguishes a financially literate person from others?
First, it is what it does and how. This includes the following:
- – maintaining a personal or family budget on a regular basis;
- – planning your expenses, even unforeseen and spontaneous;
- – the allocation of a certain% of all their income to a protective fund;
- – having a strategy for securing your pension;
- — long-term investment;
- – constant learning new knowledge and reading specialized literature;
- — personal self -development and increase of self-control;
Secondly, a financially literate person does not work for a salary, although he can go to work. He creates multiple sources of passive or residual income to secure his current and future life.
The term salary comes from combining two words: wages. That is, a person sells his time and knowledge to other people in exchange for money or a salary. He must spend N-hours at work for 5 or even 6 days a week, throughout the year, with the exception of holidays and weekends. This is the least productive activity in terms of money (pay per hour of our time).
Passive income allows you to earn income with minimal effort. Your apartment, which you rent or garage, and so on, can act as sources of passive income.
Thirdly, a financially literate person understands loans. He knows how to use them correctly and will certainly apply this knowledge in practice.
In many articles about financial culture and literacy, it is written that you need to refuse loans. But this is only partly correct advice!
A financially literate person uses other people’s money rationally, be it bank loans or credit cards. He knows exactly what and how much credit he will spend on, and moreover, he will still earn on it.
Last but not least, he uses specialized vocabulary or financial language in his daily communication.
How to start learning financial literacy on your own
One of the main success factors in finance is in ourselves. We should not be too self-confident in our knowledge and understand exactly what our weaknesses and strengths are in order to work on them. Don’t overestimate your knowledge! Keep learning!
So, we figured out who a financially literate person is and what distinguishes him from an ordinary person. Now let’s figure out how we can become financially literate. Where to start learning this very financial literacy on your own?
First, let’s define what we need to study and what to understand. To improve your financial literacy, you need to understand the following aspects:
- We need to figure out what a personal or family budget is and how to manage it. And most importantly, start to conduct it, analyze and plan. Read more about the family budget in the article (the link will open in a separate window);
- Understand the basic financial terms, discussed them in the article, and use them as often as possible in your daily activities;
- Understand taxation for individuals and how this knowledge can be used to your advantage.
study of accounts
Tip: to better understand any issue, try to explain it to another person. For example, explain financial terms to children, at least some of them.
To better understand all aspects of financial literacy, we recommend using as many sources of financial knowledge as possible. For self-study of financial literacy, you may find the following resources useful:
- Books. This is the most affordable and easiest way to learn the basics of financial literacy. But it takes time and diligence. A recommended list of books can be found later in the article.
- Financial games. This is a fun way that you can use with your children, for example. In addition to acquiring financial knowledge, you can also strengthen relationships within the family or establish new contacts.
- Training courses and seminars. The use of this method will significantly reduce the time to study the basics of financial literacy and get acquainted with the experience of other people. But in return, you will need money. As you remember, this is a good expense. See it as an investment in yourself.
- Personal consultations. This can be a more economical alternative to training, and an excellent addition to points 1 and 3. Since complex and incomprehensible points can be clarified during consultations.
As you gain knowledge, form useful financial habits in yourself, such as managing a personal budget, creating multiple sources of passive income, creating your own retirement program, investing wisely, and others.
Increase your personal profitability. That is, its financial efficiency. To do this, all that is needed is that you spend less and earn more.
On the item “spend less”, maintaining a family budget will help. With it, you can easily control your expenses. And, of course, do not forget about saving, both electricity and water, and when shopping in stores.
To complete the “earn more” item, you can:
- Think about how you can earn more at your main job;
- Find a part-time job;
- Get a second part-time job;
- Change jobs to higher paying ones
- Start your own business in your free time;
- Create sources of passive income.
Tip: What is your favorite activity or hobby? Make it your profession, due to this you can significantly increase your income.
High earnings, by itself, cannot solve all our financial problems. You need to focus on creating and increasing passive income. By creating money, we make our life more interesting.
Learning is light and ignorance is darkness
As already mentioned, books are an excellent source of financial knowledge. Below is a list of books that provide a lot of useful information on acquiring and developing the necessary financial skills, as well as investment and entrepreneurial thinking:
- “The Path to Financial Independence. The first million” – Schaefer Bodo
- "Think and Grow Rich" – Napoleon Hill
- "The Laws of the Winners" – Bodo Schaefer
- "Multiple Streams of Income" – Robert Allen
- "No cash advance" – Robert Allen
- "Rich Dad’s Prophecy" – Robert Kiyosaki
- “Money is good for women” – Bodo Schaefer
- "Invest and Grow Rich" – Heinrich Erdman
- Rich Dad’s Guide to Investing – Robert Kiyosaki
This is far from a final and exhaustive list, but sufficient to start an independent study of financial literacy.
source of knowledge
In Search of the Financial Grail
No change, on the path to financial well-being, we will make mistakes. And that’s okay. Do not be afraid of mistakes, the main thing is to draw the right conclusions from them and move on to your dream.
What financial mistakes lie in wait for us on the way to well-being and prosperity?
- We ignore the development of financial planning skills. Many begin to keep a personal budget and after 2-3 months they give up this occupation. It’s a very boring job. And there is no need to talk about planning.
- We are spending more than what is budgeted. It is necessary not only to start planning your expenses, but also to strictly follow the budget that is allocated for each item of expenditure. This is the only way to achieve the maximum effect from maintaining the family budget.
- We use a consumer loan for everyday expenses. Of course, you want to please and pamper yourself by buying a good TV or phone. But using a consumer loan for these purposes is not financially profitable. After all, we pay an increased percentage to the bank for its use. It is better to start keeping a personal or family budget and plan your purchases. Plus, for these purposes, use a credit card. What’s more, you can make more money doing it. Read more about credit cards in the article (the link will open in a separate window).
- Postponing the start of retirement savings. We want to live here and now, to get the most out of life. And we strive to drive away the very thought of old age, because it evokes depressing feelings. But the trick is that the sooner we start saving and investing these funds, the less money we will need each month for these purposes. Read about the effect of compound interest later in the article.
- We keep money in one place. You probably already know that you can’t keep all your eggs in one basket. However, many continue to keep all their money in one bank. And they do not seek to find other tools to preserve and increase their capital.
- We drop everything half way. This applies both to the constant accounting of their daily expenses, and the search for new opportunities for opening investment programs and creating additional sources of income.
Don’t be afraid of change
As already mentioned, the process of learning financial literacy is an ongoing process, but you should not get hung up on it.
Leave your comfort zone from time to time and put the knowledge you have gained into practice, do what you are afraid of. After all, with practice comes experience, and with it confidence and results.
At the end of the article, we will once again summarize how to start studying financial literacy on your own. First, learn financial terminology so that you can easily understand and communicate in it. Second, set your financial goals. Thirdly, analyze your expenses, draw up a family budget and strictly follow it. Fourth, discuss budgeting and finances regularly with your family. Fifth, understand the difference between bad and good credit, bad and good spending, bad and good income. Sixth, don’t stop learning and improving your financial knowledge and skills. Finally, analyze and filter any financial information, especially before making a financial decision.