GETTING STARTED WITH 5 BASIC FINANCIAL LITERACY SKILLS, YOU MUST KNOW

By Joshua Paulus | September 2023

In a world teeming with financial jargon, endless investment options, and the daunting specter of retirement looming far in the distance, it's easy to feel overwhelmed. Often, we're so engrossed in our day-to-day living that we neglect our financial well-being. What if I told you that mastering your finances isn't as complex as it seems? Understanding a few core principles can lay the groundwork for a prosperous future. Well, you're in the right place and not alone.

Whether you're a complete novice bewildered by terms like "compound interest" and "tax bracket," or you're fairly knowledgeable but looking to refine your skills, this blog post is your starting point. We'll be delving into the five fundamental financial literacy skills everyone should know. These skills serve as your financial compass, guiding you through the complex maze of income, expenses, savings, and investments. Master these, and you're well on your way to attaining monetary comfort and genuine financial freedom.

Keep reading to discover what you need to know to be financially literate in today's complex world.

1. Start with a Budget: Budgeting is not just about numbers; it reflects your life priorities. So, before anything else, you must clearly understand your financial inflow and outflow. This doesn't mean simply jotting down a paycheck amount or rent costs. It involves categorizing your earnings and spending into different buckets, such as essentials, entertainment, and long-term goals. Don't forget to also budget for irregular but predictable expenses, like annual car maintenance or quarterly taxes, if you're a freelancer. Utilize digital tools, like budgeting apps, or go old-school with pen and paper. Regardless of the method, this budget serves as your financial roadmap, helping you understand where you can trim excess and where you might be able to invest more. 

2. Handle Debt Wisely: Let's be honest—debt can often carry a negative emotional weight, making it even harder to tackle. However, understanding that not all debt is bad and methodically approaching it can be liberating. The priority is to be aware of interest rates and payment timelines. High-interest debts, like credit card bills, should be paid off first as they grow faster. There's also a psychological element to debt repayment; sometimes, paying off a small debt first for a quick win—known as the snowball method—can motivate you to tackle more significant debts. Make sure also to understand the difference between good debt and bad debt. At the same time, mortgage and student loans can be considered an investment, and credit card debt rarely offers future value.

3. Emergency Savings: Life's unpredictable nature makes an emergency fund vital. But what makes a fund genuinely effective is its accessibility and size. Aim to save enough to cover at least one month's worth of living expenses. From there, incrementally increase this cushion to a more comfortable zone—ideally, three to six months' worth of expenses. This will serve as your financial buffer, ensuring that unexpected events like job loss, car repairs, or medical emergencies don't throw your life off course. Consider this fund a non-negotiable monthly "expense" and contribute regularly.

4. Understanding Taxes: Taxes can often feel like an enigma. Yet, with a foundational understanding, you can take advantage of various tax benefits. Firstly, know your tax bracket, as it directly influences the amount you owe. Be aware of the types of income you receive—earned income, capital gains, dividends—and how they're taxed differently. Familiarize yourself with common deductions and credits. For example, contributing to a retirement account can reduce your taxable income, serving as an incentive for long-term saving. Keep abreast of new tax laws that may offer additional benefits or responsibilities.

5. Retirement Accounts: The concept of saving for retirement can feel too distant to be immediately relevant, especially for those new to financial planning. However, the magic of compound interest means that the earlier you start, the easier your journey becomes. Many workplaces offer 401(k) plans, sometimes with employer matching, which can significantly boost your retirement savings. If that's unavailable, consider opening an Individual Retirement Account (IRA). While you might not be able to max out contributions initially, even small deposits can grow exponentially over decades.

As we wrap up,  it's worth reflecting on the transformative power of informed money management. The road to financial freedom is not a sprint but a marathon, requiring patience, resilience, and, most importantly, knowledge. And now that we've demystified the core principles everyone should know, you're better equipped to tackle the challenges that lie ahead. 

Mastering these five fundamental skills is akin to owning a top-of-the-line navigation system on the complex highway of life's financial responsibilities. You'll know when to speed up, when to pump the brakes, and when it's necessary to take an entirely new route. And the most beautiful part? These are skills that, once understood and applied, will continuously yield dividends throughout your life—independently of market swings or economic downturns.

The path to financial enlightenment starts with a single step, and congratulations, you've already taken that step by investing the time to read this post and understand this crucial subject. As you move forward, use this knowledge as both a shield and a sword—protecting you from bad decisions and empowering you to capitalize on opportunities that come your way. 

Take the next definitive step if you're primed to elevate your financial acumen and embark on the journey to fiscal self-reliance. Head over to Amazon's Book Store to grab your copy of "Financial Foundations: Building a Stronger Tomorrow Through Wise Money Management." This comprehensive guide is your ticket to understanding and mastering the financial landscape, setting you on the course toward financial independence. FINANCIAL FOUNDATIONS