Are you savvy with your spending? Not everybody is equal when it comes to their knowledge of money matters, personal finance, and economics 101. This type of knowledge, however, is critically important for your financial health. Not all of us were taught by our caregivers and teachers about money matters. Becoming educated on personal finance choices is at the core of being able to protect your financial position.
Components of Financial Literacy
Here are the main core knowledge areas that contribute to personal financial literacy:
- Budgeting: You know how you spend your money each month and how much is used for various categories such as housing, food, vehicles, and recreation.
- Spending: You are neither too frugal nor an out-of-control spender. Rather, you use your thinking capacity and take care of your needs before your wants.
- Borrowing: With the exception of mortgage borrowing, you prefer not to take on debt, especially high-interest credit card debt.
- Saving: You have set aside funds for planned big expenses or for an emergency. If you haven’t got three month’s living expenses saved up, you are currently building it up.
- Investing: You know the difference between saving and investing. You regularly invest a certain percentage of your income into investments for long-term goals such as home purchase and retirement.
How competent do you consider yourself to be in each of these core subject areas? Do you need to work with a professional for assistance in any of these areas?
Are You Financially Illiterate?
There are definite signs that point to financial illiteracy. Read through these and see where you stand:
- Do you regularly buy lottery ticketsbut don’t invest or save?
- Do you run out of money before the end of the month?
- Do you understand the difference between short-terms savings versus investing?
- Do you always pay your bills on time?
- Do you have a budget, at least mentally if not on paper?
How do you assess your financial literacy having read through these bullet points?
Financial literacy means that you possess the knowledge and skills to effectively manage, protect and even and grow your money. In order to function in a financially literate manner, you need to have basic knowledge on a variety of money-related topics as well as and a strong sense of personal responsibility. For many individuals, partnering with a competent financial professional may be a prudent move to make.