Article written by Sean Evans.
Do you want to be able to make informed decisions regarding your money and reach your financial goals? Then it would be best if you become financially literate and stay that way.
While the definition of financial literacy and how it’s measured can vary depending on the specific survey or study, it generally refers to one’s ability and understanding to make informed and effective decisions about finance.
According to a 2020 study, only 50% of adults in OECD (Economic Co-operation and Development) member countries qualify as financially literate. The participants possessed the basic skills of budgeting and mid- and long-term planning, including the concept of compound interest and saving.
Financial literacy is a crucial skill you need to acquire to maintain or improve your financial health. Financial literacy can lead to better debt management and economic stability. It includes understanding how to manage medical bills, especially for emergencies like X-rays. Without proper planning and knowledge of insurance coverage, medical bills can become overwhelming. Negotiating with healthcare providers and hospitals can help lower costs and avoid financial stress.
Read and Stay Up-to-Date
Financial literacy is an ongoing process that requires patience, effort, and education.
Reading books and articles on personal finance is a fundamental step you need to take to start your financial literacy journey. Even when you’ve already reached financial stability, reading will keep you up-to-date with money matters or economic affairs.
Numerous resources and tools are available online that cover everything from creating an emergency fund to investing for retirement.
Brushing up on fundamental concepts like budgeting, saving, investing, and debt management will make the building blocks of your financial knowledge more solid.
Furthermore, you must actively search for new information and keep yourself posted on recent trends in the financial world if you want to stay financially literate.
You can subscribe to financial newsletters and blogs from reputable sources, participate in workshops, take online courses, and attend seminars.
Seek Professional Advice
Two heads are better than one. While absorbing financial information alone can go a long way, having a financial professional to guide you is an advantage.
Regularly communicate with a trusted financial professional to stay financially literate, ensuring that your financial moves align with your goals.
Financial advisors, accountants, and other financial experts can provide valuable insights that you can leverage. Moreover, qualified financial experts can help you understand complex financial concepts. They can also assist you in achieving new financial plans that consider your financial situation and goals.
Set Financial Goals and Make Adjustments
Setting goals gives you direction, a roadmap, and a coherent picture of the steps you need to take. It also keeps you mentally active and motivated.
Whatever your goals, it’s necessary to define them clearly; they must be specific, measurable, and (of course) achievable.
If you want to stay financially literate, reviewing and adjusting your goals is essential. Situations change. And making necessary modifications to meet the current circumstances can help you stay on track and help you celebrate your progress.
Continually Improve Your Credit Score
Your credit score is a number that predicts your creditworthiness to banks and other financial institutions, making it one of the most important in your life.
A good credit score can open financing opportunities, like competitive terms and lower interest rates, and save you money on credit cards and loans in the long run, giving you flexibility when making financial decisions.
There are many ways to raise your credit score, including making your payments on time, keeping your credit card accounts open, and limiting how frequently you apply for new credit.
Paying off debt like loans and credit cards and lowering your credit utilization ratio is also an excellent way to get a good credit score.
However, like financial literacy, improving your credit score must be a continuous process. Consistently look for ways to improve your credit score as you would update your knowledge to stay financially literate.
Checking your credit report periodically ensures that you’ll have financing options when needed, allowing you to make informed and effective financial decisions.
Prepare for the Future
Life can be unpredictable. Unexpected events, such as natural disasters or medical emergencies, can occur anytime.
Financial literacy includes having the ability to handle unforeseeable circumstances without going into debt or compromising your financial stability.
One way to prepare for the future is to save for an emergency fund. The amount you need as an emergency fund can vary widely depending on your financial situation.
Generally, your emergency fund must cover three to six months’ worth of your living expenses. Contributing to your retirement accounts is also essential when preparing for the future, as it allows you to take advantage of compound interest.
Having backup funds can help you anticipate, plan, and make informed decisions for unexpected events, which is fundamental to financial literacy.
Why You Should Be Financially Literate
Financial literacy is an important life skill with numerous benefits to your personal and professional life. You can make better financial decisions with a solid grasp of financial concepts like budgeting, investing, and debt management.
Remember, obtaining financial literacy is a lifelong endeavor. And it’s essential to expand your knowledge base continually.
Constantly seek out new information, update your financial goals, always aim for a higher credit score, stick to a budget, prepare for the future, and ask for help when needed. If you do all these, you’re setting yourself up to stay financially literate and on a path towards financial stability.