Learning about the basics of how money works is very important. Learning it earlier is even very crucial to help you become very confident with your finances later in life. Although no time is too late to begin to learn, it is more beneficial to begin to early enough.
Being a financially literate person means you are able to understand and comfortably make use of different existing financial skills to handle your finances in a better way. These financial skills include budgeting, financial management, and investment.
Source
On the other hand, it also means being able to comprehend some financial principles and concepts, debt management, and financial planning. When an individual is financially literate and ready to make applications where possible, it makes such a person become self-sufficient and able to attain financial stability.
Financial literacy in simple terms means the person knows how to create a budget, the individual knows how to track spending, also knows how to pay off debt, and also knows how to plan for retirement.As simple as each of these topics sounds, it helps a lot when a person knows his or her way around them adequately.
Getting a proper education on these topics entails that you now know how money works, set and achieve financial goals, become aware of unethical discriminatory financial practices, and also be able to manage challenges that life throws at you.
Let's take a quick look at some of the components of financial literacy that need to be learned properly.Budgeting: There are four major uses of money in terms of budgeting; they are spending, investing, saving, and the one we choose to give away.
These four factors must be balanced accurately; when they are appropriately balanced, they allow for better allocation of income, leading to financial security and prosperity. In a budget, there should be a way or means to pay off every existing debt while money is left aside for savings and making good financial and beneficial decisions.Investing is the next thing on our list; key components as regards saving must be learned by everyone.
Learning about the components of investing gives room for a smarter financial decision that leads to an increased income flow.Borrowing At some point in life, there may be a need to borrow, but we must be smart enough to borrow only for the right reasons.
In order for this to be achievable, we must understand basic terms like interest rate, compound interest, time value of the money borrowed, loan structure, and the time you are supposed to pay back.Taxation is another thing every individual should have basic knowledge about. We need to have different forms of knowledge on taxation and how they affect an individual's net income. Either you are an employee, you are investing, you have unexpected money, or you have an inheritance; they are all taxed differently.
Source
Personal financial management It is a combination of all the terms mentioned above. Giving room for an in-depth knowledge of all these financial components guarantees an increase in the financial knowledge of the person.Financial literacy is the best thing you can do for yourself; it helps to prolong financial stability.
Based on estimates, so many people simply live from paycheck to paycheck, and that is not a financially wise decision. Here are some listed-out healthy benefits of being financially literate.
It creates lower financial stress and anxiety.
It creates the ability to make better financial decisions.
Better equipped to attain financial goals.
Creating a better-structured budget.
A more effective way to manage money and debt.
Expenses reduction through a better form of regulation.