5 simple steps to achieving financial literacy
Last Updated on by King Iphy
Financial literacy is one of the most important and useful skills people can learn in their lifetime. There’s a reason why financial literacy is a requirement for a lot of financial professionals. Whether you’re a graduate student, a recent college graduate, or a twenty-something in a high-paying job, you’re in a position to earn, save, and invest money.
It’s easy to feel overwhelmed by the financial world. But there’s no need to feel intimidated. The good news is that there are ways to help you learn about money and become more financially literate. Here are the 5 simple steps that can help you take charge of your money and become a financial hero.
1. Spend less than you earn
The first step to achieving better financial literacy is learning to spend less than you earn. This may sound like an obvious skill, but it’s not just about curbing your spending habits. It also means that you don’t make purchases unless you have the funds to pay for them. When you buy something with money that’s been saved or earned, it feels different than if you were to charge something on a store credit card. You get some peace of mind knowing that you’ve done all that you can do to avoid being in debt. The feeling of accomplishment is priceless!
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2. Find a financial mentor
A financial mentor is someone who you can ask for help and advice in managing your money. For example, if you’re struggling with a particular personal finance issue like budgeting or retirement, your mentor might be able to help. Mentors are available from all sorts of backgrounds, including family members as well as professionals and experts.
3. Learn about risk and return
There are two main components to investing: the risk and the return. Risk is what you’re willing to invest in order to get a higher return. For instance, stocks have a higher return than bonds. But they also have a higher risk of losing money.
When you start investing, it’s important to think about risk vs. return and how much of each you want to take on in your investment portfolio. You don’t want all your eggs in one basket, so it’s important to diversify your investments.
A lot of people think that they need a huge chunk of money before they can start investing. But you don’t need much at all – even $5 can make an impact!
4. Start a budgeting practice
A budgeting practice may sound like a tedious task, but it’s one that can make all the difference. A budget is not a punishment—it’s an opportunity to organize your finances. The first step in any budget is figuring out what you can afford each month and how much you spend on monthly expenses.
How much money do you make?
What are your monthly expenses?
Do you have student loans or car payments?
Do you live at home with your parents or rent an apartment?
Do you work more than 1 job? If so, how many hours do you work per week?
The answers to these questions will help determine how much income needs to be allocated to each category of spending. You should also include any goals for the future, such as saving up for a vacation, buying a house, etc. This will help with long-term planning and allow you to have more financial freedom in the future.
5. Learn the basics of investing
One of the most important things to know about investing is that it’s not all about money. Investing is about making your money grow by making smarter decisions and thinking long-term. If you have a retirement account, for example, you need to invest in it now so that it will be worth more when you retire. There are many different types of investments out there, but one of the easiest ways to start investing is with a loan or bond. Loans and bonds are low-risk investments because they’re backed by assets like real estate or stocks, respectively.
To achieve financial literacy, it’s important to know the basics of investing and budgeting. The most important thing is to spend less than you earn and save in a way that’s right for you.
With these 5 simple steps and some practice, anyone can achieve more financial literacy.