5 Key Components of Financial Literacy

5 Key Components of Financial Literacy

How many of us don’t want to have pockets which are full of money? Well I do and what about you? We all know those dollar bills aren’t going to appear out of thin air. So what are you doing to make your pockets heavy? Heard about financial literacy before? Well, this is something which helps a person to make wise financial decisions. Financial literacy will help you to generate money and let you to understand its value.

So according to you how successful business men make millions of dollars throughout the year…It is the financial literacy that they are the master off. In this blog we will talk about why it is important to understand the concept of financial literacy and what are its 5 Key components that one needs to know. So, grab a cup of coffee, scroll down and enjoy your beneficial read.

Definition of financial literacy

Financial literacy is actually an understanding the mechanism of money and the economy. The concept is all about how money flows within the market and how it reaches back to you. From revenue generation, investments, to return on investment everything is included in this concept. Financial literacy is actually a skill that helps you to take smart decision when it comes about your money.

If you are an entrepreneur or planning to be one, you need to take effective and efficient decisions about your money. Once you are financially literate you can easily differentiate between profitable and poor investments. Your good investment decisions will ensure your long term success with all the bright colors that you had always dreamed of.

Financial literacy can prove to be beneficial for:

According to your calculations what percentage of the people is financially literate? As per the findings of the National Financial Capability Test of US given to over 17,000 people from all 50 states less than half (48%) of participants were able to pass the 30-question test that covered things like budgeting, paying bills, setting financial goals, and other personal-finance related topics. This scenario narrates it all.

From investor to entrepreneur everyone is benefited from financial literacy. Even if you are a 9:00 to 5:00 employee with no additional income, you are still going to get benefit from financial literacy.  If you have well back of financial literacy you can plan your investments in stocks, real estate, and other markets while setting your money aside as your retirement fund.

After reading about the benefits of financial literacy I am sure you may be excited to learn about much awaited sub topic – 5 key components of Financial Literacy. Without further delay let us jump straight into key components:

The Basics of Budgeting

Budgeting is the basic thing that one learns from elementary school. It may sound something easy are regular to you but trust me it’s a thing on which your whole financial status depends.

Creating and maintaining a budget is one of the top aspects of your finance. In fact in this digital era it becomes easy for you to create budget as you are blessed with various websites and apps. Gone are days when budget was synonym to strong maths- available user friendly tools can help you to get your finances on track. If used properly these technical tools will help you to foresee where your money is actually going. Your financial novice should begin from learning the basics of budgeting.

Learn about Interest Rates

For securing your valuable money it is very important to have basic knowledge about the interest. Be a responsible money owner and makes yourself to learn about different aspects of interest like compound interest and simple interest.

Wondering Why? Not only can it help you save even more, but it can make the difference between borrowing a small amount and paying back much more than you need to for years to come. Understanding the ins and outs of interest can impact your finances more than you likely realise, so it’s an important thing to conceptualise every aspect of the same.

Prioritise your Savings

Saving is the most important aspect of maintaining a healthy financial situation. Most of us don’t prioritise this important habit. Ignoring the idea of retirement can be easy for you but if you practice some saving skills, you are going to live stress free life in your old age. All you need to do is, set a small saving goal for yourself, whatever amount you decide and keep adding this value per week or month (according to your feasibility). Having peace of mind? Well, that comes with practice, attentiveness and endurance, all qualities you’ll develop when mastering your savings skill set.

Beware of Credit-Debt Cycle Traps

We all know that it is easy to lose credits than to gain it, and many of us don’t realise how easy it is to ruin our credit. This is the reason we should have crucial knowledge about our debts earlier rather than later. We often get glittery shine in eyes when some bank offers us credit cards but be cautious this can be trap too. No doubt your Credit can be an extremely useful tool but when managed correctly. You should never sign up for any and every credit card – and then go crazy. If you do need a credit card for emergency purposes, do a proper research first and then compare offers to discover which one is the best for you and your budget. Then when you get one, use it sensibly.

Always try to identity Theft Issues & Safety

This digital era has blessed us in many ways and so has blessed the theft world. In this modern day and age, cyber theft is one of the biggest concerns. Since we are so much dependent on online shopping our financial information is more vulnerable to fraud. Just be little more cautious by limiting information shared online and by protecting your password. Never ever share your OTP with any random person; it’s important to safeguard your finances as best as possible to avoid the threats that exists. Besides, if your social media accounts are public, consider switching them to private – or limit how much information you post. Change your password twice in a month and make use of strong passwords typically with an uppercase letter, number and symbols.

These were few basic keys for your financial securities, try them and make your money safe. For any assistance, contact us.