Surely you have heard of it. But do you really know what Financial Literacy is? Quick answer: It is a branch of economic studies that deals with understanding and making understand the ways in which money works.
The goal: to provide to the people with tools and knowledge to maintain healthy finances. Citizens who properly manage their assets, so that they can enjoy the highest possible quality of life.
How to manage money
You have to know how to manage your finances. How to spend your money properly. Following plans that allow you to achieve aims and objectives you set for yourself. Without leaving anything to chance.
What to do in situations of economic stress? A good financial literacy gives you strategies to suverlife when chaos strikes. Financial education is the basis for managing times of crisis.
Financial Literacy: Income and Expenses
Everyone must understand the “tragic love affair” between income and expenses. Know how much money comes in and how much goes out. We have already said in this blog before: nobody can spend more money than they receive.
The thing is not to be extremely limited with the money. Maybe sometimes that is necessary, but not always. If you want to spend more, you must first increase your income. Even when the profits are high, you have to maintain some self-control. It’s not about being stingy. It’s knowing where “the cash” goes and keeping balance.
The budget
We’ve written before about how important it is to build a personal budget. Many people think that the sole purpose of this job is to spend less. Beyond spending cuts and any austerity measures, knowing where the money is going and balance remain key. Even more: put the money to its intended use.
Another simple fact: It is impossible to have a clear idea of the income – expenditure ratio if you don’t have a budget sheet adjusted to reality.
Financial Education: just knowing how to save?
The ability to save is related to healthy finances. The first is not possible without the second. When there is no saving, it is because income is less than expenses. And that is synonymous with economic crisis.
Saving is money you don’t spend. But it’s much more than that. You must have real reasons to save. Give each target a name. Getting an emergency fund is one of the most popular resolutions. Going on vacation or buying a new car are other legitimate goals.
How to invest the money
Most people think that investing is something only for businessmen (and women). Financial literacy can provide skills to learn how to invest money and make it grow. It is not about “investing for investing sake” without a plan. Also, you can never forget that every investment involves some risk.
A loan must be used to increase assets, goods and financial instruments that maintain their value over time and even raise it. Getting liabilities is a very bad idea.
Financial literacy, crisis and chaos
In life there are many things without control for people. It is not an exception when we talk about economics and finances. Inflation is the best example. The rising cost of living can destroy the personal and family finances of anyone.
Financial education is essential to successfully face inflation scenarios. Even to get ahead of them and prepare for the worst.
