When making any kind of decision, you should always exercise due diligence. This article explores nine important financial subjects to further assist you in understanding, safeguarding, and growing your finances.
First, let's define financial literacy and examine what it means to be financially literate. Then, we'll examine how to become financially literate.
What is the meaning of financial literacy?
It involves a thorough understanding of money and expertise in financial management, borrowing, investing, and budgeting.
Use the resources at your disposal to provide thorough, knowledgeable information on numerous financial products and services for diverse financial situations in both personal and professional contexts. Financial institutions, finance and investment websites, publications, applications, and networking chat groups (both online and offline) are a few examples of such resources.
Let's discuss nine topics you can start working on immediately in light of those above:
Your Net Worth
The difference between your assets and liabilities is your net worth.
Add up all of your assets to determine your net worth. These include the cash you have in savings, investments, and bank accounts and tangible assets like your cars, houses, machines, gold, silver, and other assets.
Don't let the fact that your net worth isn't what you'd like it to demotivate you. Due to liabilities (such as credit card debt, mortgage payments, loans, and student loans) frequently exceeding assets, many starts with a negative net worth or already have one.
Your next objective after learning about your net worth is to learn how to budget so that you may gradually improve it as you save money and eliminate debt.
Budgeting
One of the most fundamental financial concepts to learn is creating a budget, which is all about understanding how to make wise financial decisions.
In other words, by figuring out exactly how much money you make each month and where it goes, you learn how to manage all of it.
How do you begin, then?
- For each month's budget, first make two columns: one for income and one for expenses. Then, review your budget and fill out the appropriate fields. Your financial situation is good when your revenue exceeds your outgoings. So, constantly aim to cut costs as much as possible without sacrificing your living standard.
- Pick a spending plan that works for you.
There is no one ideal method of budgeting.
The finest budgeting approach for you can be found, and you can learn more about it. Here are a few well-liked budgeting techniques:
- 50/30/20 percentage budgeting system
- Use budgeting applications or tools
- Pay your bills first
- Use the envelope system for budgeting
Save Money
Saving money is another area of finance to learn about, but it's not surprising that most people don't do it.
Finance experts advise saving at least 10% of your salary. It's better to start off learning about saving by learning how to set money aside for particular financial needs. In this manner, you progressively gain knowledge about saving tools and techniques and how to adjust and meet your objectives. To learn more about various types of savings objectives, consider the following examples:
- an emergency reserve to handle any unforeseen expenses life may present
- Putting money aside for immediate needs like holidays and gifts
- Putting money aside for long-term objectives like purchasing a car, a home, or starting a "side hustle."
Like most things, saving money doesn't come with a magic wand; it requires good decision-making.
Making investment
The next step after learning how to handle your current finances is understanding how to earn more money and what to do with it.
Investing is one such technique to generate additional income.
Learning about investing entails becoming familiar with the many investment opportunities and the benefits and drawbacks of each.
It's significant to remember that not everyone can find the "ideal" investment strategy.
Therefore, familiarise yourself with these investing 101 terms that will be referenced in any investment issue or discussion before you start investing:-
- The act of dispersing your money among a variety of investments is known as diversification.
- How you allocate your assets among your investments is known as asset allocation.
- Time Horizon is your investment time horizon, whether long-term or short-term, or how long you intend to keep onto your assets before selling them.
- Your level of loss acceptance is your risk tolerance while making an investment decision.
All about credit
If your loan application was turned down, it was probably due to your bad credit rating. Understanding what credit is and how it functions will enable you to see how a credit score functions as a sort of financial resume that creditors use to accept or deny credit requests.
Before granting you a credit card or loan, creditors must assess your likelihood of repaying the borrowed funds.
Manage Debt
Everybody gets into debt at some point in life, whether it's a college loan, a mortgage, an airtime loan, or a "lipa pole pole" payment plan.
Given the data above, it is obvious that any national debt affects a country's GDP. As a result, there is a cascading effect that will either help or hurt your finances.
You risk falling into debt if you don't understand how to manage it. Because of this, you should endeavor to understand the many kinds of debt and how to manage each one without jeopardizing other financial commitments.
Taxes
Believe it or not, there was a period when people paid taxes for wearing wigs and for refusing to shave their beards (beard tax) in the 17th and 18th centuries.
Even if there are now a few uncommon tax types, everyone must pay taxes as part of each legitimate transaction.
Thankfully, you aren't expected to be an expert in taxes, but knowing how much you pay is still crucial. You can get assistance with all tax-related matters from a competent accountant, automated tax software, or access to KRA.
Remember that you must also pay taxes if you earn money, and most tax deductions are made before you see your earnings.
Financial Protection from Fraud
Online financial services are easier to access, which raises the possibility of fraud attacks, in contrast to traditional centralised finance institutions, which are virtually impossible to penetrate.
Hacking is a common problem in today's digital world; sadly, it worsens as technology develops. It has made using your personal information in online trading, banking, monitoring, and investment platforms riskier.
Although becoming a target for hackers is something you cannot change, you can prevent being a victim.
You can secure your financial accounts by understanding how to protect your money.
Proper use of insurance
Remember that insurance is an additional safety net to support you in a disaster. Discover the steps involved in purchasing insurance on public (NHIF) and private marketplaces. Purchasing insurance is a way to manage risks against the payment of losses.
When you get insurance, an insurance provider invests your money to increase it and your reimbursement in case of a claim. Where should you begin your insurance education now that you know the numerous insurance products and providers?
Most financial gurus advise knowing about the four categories we all need: health insurance, auto insurance, life insurance, and long-term disability insurance (where applicable) (short-term and long-term).
Conclusion
Don't worry if reading through this list of financial subjects made you feel overly overwhelmed. Today, you don't need to be an expert on these subjects. But as you learn, this list will be a terrific place to start.
