Financial literacy is an important skill that everyone should learn to become successful and get rich. Being financially literate means understanding how money works, how to make it, how to save it, and how to invest it.
Financial literacy includes our knowledge and awareness about managing financial resources.
This knowledge should help us to be financially secure throughout our life. In other words, financial literacy is gaining knowledge about saving from income, investment, budgeting, and liquidity. Financial literacy is not easily acquired, and to obtain it, you must study and research. Studying financial literacy may be a bit difficult, but considering its importance in managing life’s finances, it is worth spending time and even money for it. In the rest of this article, we will talk about the importance of financial literacy for getting rich and provide tips on how to become financially literate.
what does it mean to be financially literate?
It means understanding how to manage debt, how to plan for retirement, and how to protect your assets. With the right financial knowledge and skills, you can make smarter decisions with your money, create wealth, and achieve financial freedom.
To get rich, you need to be financially literate. That means understanding the basic principles of finance and accounting. Have ever asked yourself questions like: Why do so many people go bankrupt? Why are so many people in debt? Why do so many people fail to achieve their financial goals? It’s because they don’t understand basic finance. If they did, they would make better financial decisions and be in a better position financially.
How does financial literacy help us get rich?
Instead of focusing on financial literacy first, most people definitely go for earning more money. Of course, we are not against trying to earn more money, but we believe that money and earned income cannot be managed well without financial literacy.
Saving money is one of the secrets of successful people getting rich in this field. In fact, the important principle that leads to becoming rich is saving money. In other words, if we do not have the necessary knowledge and skills to save money, we may easily lose our hard-earned money.
Those who do not have the skill of money protection do not know how to properly invest their money and increase their wealth.
What are the basic principles of financial literacy?
Referring to international authoritative articles in the field of economics, financial literacy consists of four main pillars as follows, and we briefly explain each one below:
- the budget
- Income
- Personal financial management
- saving
The budget:
A budget is an estimate of revenues and expenses over a specified period of time in the future. Funds may be used by governments, businesses, and the general public. A budget is basically a financial plan for a specific period. For example, when we plan to manage a four-person family trip for a week, our budget for this trip may be 2 thousand Dollars. Budgeting is one of the principles that learning helps to improve our financial literacy.
Income:
For individuals and businesses, income generally means the value or amount they receive in exchange for their hours, products, or services. For example, the daily income of a construction worker may be $200 hundred dollars or the monthly income of an employee may be equal to $6,000 Thousand Dollars per month. Obviously, income management and budgeting are highly dependent on each other, and without income, budgeting has no meaning.
Personal financial management:
The set of things that a person does to manage his finances is called personal financial management. For example, for a person to know how much is his fixed and variable monthly income and what is the cost of his fixed and variable expenses, it shows the existence of personal financial management in his financial life. Also, whether he has debt or not and if he has, whether he can pay it or not, all determine the quality of personal financial management.
Someone who has good personal financial management is prepared to pay unexpected expenses (principle of prudence). Using a personal account management application has a great impact on improving this principle of people’s financial literacy.
Savings:
According to academic definitions, savings is the amount of income that is not spent after a certain period of time. There are different ways to save. For example, setting aside money in a savings account, retirement account, mutual fund, or holding cash are examples of saving. In addition to being one of the important principles of financial literacy, saving is one of the good habits of people with high financial health.
What is the principle of caution in financial literacy?
The principle of prudence means taking prudent measures with respect to your financial situation. For example, saving for the day just in case or getting health insurance are examples of the precautionary principle.
This principle will be very effective in controlling the tensions of your life and preparing for emergencies. Considering the high costs of treatment, one of the most effective measures is to pay additional insurance and use its benefits. Supplementary insurance is a very suitable solution for paying treatment costs when the cost of the disease is more than you can afford.
Also, forming a fund or savings account for unforeseen events is one of the methods of implementing the precautionary principle. However, many advisors recommend investing in a market with low risk and high liquidity instead of real savings.
The principle of trust in financial literacy:
The next step is the question of trust when investing. There is usually greed for more money and more financial ability in every person. But we should never entrust our capital to others for the sake of higher profits. For example, proposals such as investing in forex with an annual return of more than 100% usually seem very attractive, but we must always remember that high profits will undoubtedly have high risks. Before making any investment, we should consult a professional advisor. And in the end, the principle of trust in financial literacy tells us that the main priority is capital preservation, and earning profit is the second priority.
Financial literacy in borrowing money or loans:
One way to pay for essential expenses is to borrow money or get a loan. This method seems like a good method, but remember that when repaying the money, in addition to the initial amount, we also have to pay an amount as interest. That means we have to pay more money to the bank.
So, if we intend to take a loan, we should compare bank interest rates before starting to receive a loan. One of the most important points that will help you when using a loan is the annual interest rate. This rate shows us the annual cost of the loan. That is, in fact, it shows us the principal of the money and the amount of interest we pay.
Final word:
In this article, we talked about the most important principles of financial literacy, as well as the two principles of trust and caution in financial literacy. Financial literacy about borrowing money and the importance of financial knowledge for children and teenagers were among the other issues discussed in this article.
Financial literacy is a set of knowledge and skills, the acquisition of which will have a profound impact on the financial health of a person as well as the society in which he lives. Making the effort to learn financial literacy may take time, but it will have great results for your future.