Financial Literacy

What is Financial Literacy?

Financial literacy is the ability to understand and effectively use various financial skills, inclusive of personal financial management, budgeting, and investing. Financial literacy equips us in today’s world with the knowledge and the skills that we need to manage money properly and effectively. Another major part of financial literacy is paying yourself. The value of paying yourself will help to build up a nest for emergencies. Without these skillsets, one’s ability to make effective financial decisions will be difficult. Many people do not prioritize this aspect as much as they should.

Here are the 5 Key Components of Financial Literacy:

Revenue – Make Money:

The first start to financial planning and literacy is understanding how much one earns on a bi-weekly or monthly basis. If your income is the same dollar amount each payroll, then this is easy. If your income varies with each payroll, whether it is due to overtime earnings, commission, etc. the breakdown will be more challenging. We will need to take a deeper dive into estimating.

Your net pay (after taxes) is what you will need to know the exact amount of income. Once you have determined your net pay, you will be able to move forward to the next component.

Budget – Expenses

Creating a budget helps to achieve one’s financial goals. Budgets help you to plan your spending and holds one to timeframes of which such spending is allowed. It is recommended to create your budget in Excel so that you may calculate your numbers easily. To create a monthly personal budget, you will need to track your expenses over a monthly timeframe, breaking your expenses by categories and by due dates. This monthly budget should be reviewed each time that you receive your paycheck. Items paid from your budget should be noted on the spreadsheet with either a date of payment or the letter P for paid.

Planning/Raining Day Fund – Save

Saving is an intricate part of determining your financial goals. However, everyone will have their own unique situation, which will determine what their financial goals are. Whatever the unique situation is, your financial goals should include the following:

Credit Utilization – Credit Score

Monitoring your credit utilization and credit score is a major part of maintaining financial stability.

Check the Annual Percentage Rate (APR) on your cards. The lower your APR is, the less interest you will pay overtime. If you have a high credit score, then you are more likely to pay less interest. You should never keep an ongoing balance on your credit card as this is an easy way to rack up debt, increase your utilization rate and decreasing your credit score. Keeping your credit utilization rate at 10% or under is extremely healthy. Paying your credit cards on time and/or before the due date will also help build a healthy credit portfolio.

Protect & Guard

Now that you have set yourself up with a prosperous and stable financial future, you are now able to protect and guard your finances moving forward. This means reconciling your bank accounts and credit cards monthly, safeguarding your accounts, passwords, documents and making sure that when using the internet, you are protecting yourself and information. Lastly, take a stab to understand and secure the type of insurance protection that you may need to protect yourself and your finances.