Introduction
Financial literacy is defined as the ability to understand and effectively use various financial skills which include personal financial management, budgeting and investing. This article will look at the principles of financial literacy, the importance of being financially literate and how one can become financially literate.
What are the principles of financial literacy?
There are various principles of financial literacy namely; earn, save and invest, protect, spend and many more.
Principle 1: Earn
One needs to use various strategies in order to generate money which can be used for day-to-day activities. One of the strategies that one can implement is having started a small business, some of the small business ideas are as follows: online or face to face tutoring, doing makeup or pedicure and manicure, baking, selling fragrances, ordering clothes online and doing laundry just to mention a few.
Principle 2: Save and Invest
Saving and investing money is quite crucial and it enables someone to reach financial goals. When you save and invest money you will not be stranded when you have an emergency or need to apply for a loan since you have money that you have saved or invested. Some of the things that you can do in order to implement this financial principle is having an emergency fund that covers approximately three to six months’ worth of living expenses, this safety net ensures you’re prepared for unexpected financial challenges. Learn to invest wisely-you can invest your money in stocks, mutual funds and real estate just to mention a few, also make sure to register with a registered business to avoid financial losses.
Principle 3: Protect
Life is full of uncertainties which can be inevitable in most cases, it is vital to safeguard your financial wellbeing by utilizing various protection measures such as: Having an insurance coverage: There are different types of insurance coverages like, health, disability and life insurance which are essential in protecting you and your loved ones from financial losses and expenses. Planning for retirement is also crucial to avoid experiencing financial problems after retirement.
Principle 4: Spend
Knowing how to spend money wisely will enable you to spend within your limits and avoid using your money on irrelevant things. Strategies on how to implement this principle:
- Learn how to differentiate between wants and needs: Prior to spending your money on anything assess whether it is a want or a need, if it’s just a want, you shouldn’t spend your money on it before buying the needs in your life such as grocery and toiletries.
- Budgeting: Write down a budget of the items you want to buy and the estimated amount of money needed this will provide for overspending.
Benefits of being financially literate
Being financially literate has various benefits such as:
- Reduction in expenses.
- Less financial stress and anxiety.
- Effective creation of a budget.
- Being able to make better financial decisions.
- Effective management of money and debt.
How can one become financially literate?
The following strategies can be used in order to become financially literate:
- Reading financial books.
- Listening to financial podcasts.
- Subscribing to financial content on social media.
- Talking to a financial professional.
Conclusion
Becoming financial literate enables one to gain financial growth and be able to use money wisely. It is advisable to implement the financial principles which were discussed in this article in order to reduce financial stress and anxiety.
