The definition of financial literacy varies, but all of them have one central theme – financial wellness. Financial wellness is when you have enough money on hand to take care of immediate and future needs without stress. Therefore, financial literacy is having the necessary financial skills and knowledge to help you make sound financial decisions, leading to financial wellness. If you find yourself constantly worrying about money and the lack of it which leads to stress-induced sicknesses, then you are not financially well. A comprehensive financial literacy program is a great place to start. Financial literacy, when properly implemented, leads to financial wellness.
Just like any strong building or viable venture, financial literacy has pillars that support it. Without these pillars, your financial future will come crashing down like a house of cards. The pillars of financial literacy make sure that your dream of being financially free materializes. However, it won’t do you any good if you implement all the pillars except one. Like a chair with three legs, your finances will lack balance. The financial literacy pillars must, therefore, be considered holistically if you aim to have a solid financial future.
The first pillar of financial literacy is how much money you make. Knowing how much you earn at the end of the month helps you to plan your budget. It can help you to make sound financial decisions that will not jeopardize your future. Knowing how much you earn will also help you to live within your budget – which is a cardinal rule for financial wellness. Financial literacy teaches you how to budget and stick to it.
However, budgeting can be tricky if you don’t have a stable stream of income. If your income fluctuates from month to month, it will be very difficult to calculate exactly how much you earn, but you don’t need to fret. The GuardianWealth financial literacy program can help you calculate your income so you can plan an effective budget. It gives you the necessary financial literacy skills that you need to succeed.
Things are a lot easier if you are on a steady stream of income. If you work for the government or a private organization that provides payslips, you don’t have a problem. All that is left is just to take a look at the payslip and determine how much you earn.
Knowing how much you earn helps you to know if what you are making is enough to help you achieve your financial dreams, and if you are not making enough, financial literacy teaches you how to create multiple streams of income. There are several passive income models which are tried and tested. You can adopt any of the models to help improve your finances. Remember, knowing your exact monthly income is the first pillar of financial literacy. Without it, all the other pillars, which we would be talking about shortly, won’t work effectively.
The next pillar of financial literacy is creating a personal budget. As we discovered earlier, knowing how much you earn helps you to create a personal budget. To become financially well requires great discipline, and you can’t achieve that discipline if you don’t have a personal budget. Though financial literacy educates you on how to draw an efficient budget, it is easier said than done. Creating a personal budget is no mean task as you are bound to leave something out. That is where the GuardianWealth financial literacy program comes in. It assists you to draw an effective budget that will take care of all your income and expenditure. Financial literacy is the hallmark of the GuardianWealth app.
To create a personal budget follow these steps:
This step requires that you put together all your expenses and financial paperwork. So, consider your bank accounts, credit card bills, utility bills, investment accounts, recent purchases, monthly expenditure, etc. When it comes to budget creation, financial literacy teaches that you include the minute details. This is very important in determining an effective and working budget.
One of the numerous benefits of financial literacy is knowing how to calculate your income. As discussed earlier, this is easier if you have a regular paycheck. Also, include all other forms of income like donations, fundraisers, etc. Whatever gives you money on a regular basis should be included and make room for money that comes in every now and then.
Write down all the avenues where your money goes. From insurance to loans, don’t leave anything. Also, remember to include savings as well. Then separate your fixed expenses from variable expenses. Fixed expenses are the expenses you make every month throughout the year, while variable expenses are the expenses that vary from month to month. Doing that is a sure sign of financial literacy.
The final step in drawing your budget on your financial literacy journey is comparing your income to your expenditure. If your expenditure exceeds your income, then there’s cause for alarm. You need to make adjustments or else you’re headed in the wrong direction. However, if your income exceeds your expenditure, then you are all good.
The next financial literacy pillar is the art of saving. Of all the financial literacy pillars, this is the most difficult, but most rewarding. The discipline required to save some money at the end of the month is top-notch. However, good things don’t come easy. That is why to be financially free, you need to master the art of saving. Financial literacy examines several effective methods you can employ to make sure you have saved at least 10% of your income. The benefits of saving can’t be understated. Not only does it guarantee that you have enough money to cushion you through hard times, but the peace of mind and satisfaction of knowing that you have enough money relieves you of worry and stress. How do you develop a saving culture?
There are a million methods, in the world of financial literacy, to adopt if you want to save.. Let’s examine a few pragmatic steps:
According to financial literacy, saving for the sake of it is not ideal. Have a goal, it could be anything from saving for a big purchase to saving for retirement. Without a goal, it would be difficult to save. Having a goal also helps you to develop the discipline you need to be financially free.
Know how much you earn but most importantly, know where the money goes, and plug the loopholes. Financial literacy helps you know how to stop certain financial ‘leaks’. For example, you can download apps that compare the prices of items, then shop at the store that sells at the cheapest price. If utility bills are the loopholes, then save on electricity by unplugging machines when they are not in use like fans.
The temptation to spend your savings is stronger when you keep your salary and savings in the same account. So, save in a different account – one that you don’t have easy access to.
However, a more effective way to save is to use the GuardianWealth financial literacy program. This program explores the tenets of financial literacy and guides you to save some money for a rainy day.
The fourth pillar supporting financial literacy is credit. Credit in itself is not a bad thing, however, the issue lies with the interest rate. Some interest rates are higher than others, that’s why you need to research interest rates to identify which one fits your pocket – and that is when financial literacy steps in. According to financial literacy programs, the best way to compare credit card interest rates and interest rates on loans is to use the Annual Percentage Rate (APR). Annual Percentage Rate is the monthly interest charge added to your credit card or outstanding loan. Cards with lower APRs mean you’ll pay less interest rate over time, while cards or loans with high APRs mean you’ll pay more over time.
To get a low annual percentage rate, just keep a higher credit score. Financial literacy equips you with the requisite skills to get and maintain a higher credit score. Also, learn how to choose credit cards and use them responsibly to avoid racking up debts thereby hurting your credit score.
The last pillar of Financial literacy is protecting your finances. What’s the use of going through all this hard work to save and build your financial future just to lose it to some fraudulent scheme? Saving isn’t easy, it is hard work. That is why you need a solid plan to protect your hard-earned money. These steps should help you.
Protecting your money is a vital pillar of financial literacy that is why you need to regularly review your bank accounts and credit card statements. You can even make it a daily or monthly habit to cross-check every activity on them. If this proves too difficult, you can sign up for financial alerts from your provider. These alerts are sent to you as soon as a transaction takes place on your account. This helps you to adequately monitor your account. When you spot any dubious activity, report it immediately.
The Financial literacy pillars may crumble if you do not protect your identity. Identity theft can result in you losing in minutes all that you’ve worked for in years. Keep your passwords, account numbers, and social security numbers offline and in a safe place. Review all emails requesting your personal details – avoid them entirely. Also, be conversant with your financial providers’ web address so that you can easily spot a fake or cloned one. Knowing all these makes you financially literate, helping you to avoid pitfalls that may lead to the loss of your money.
Apps have made life a lot easier but they pose great security risks. So download apps only from trusted sources. If you use mobile money apps to transfer and receive money, then be extra cautious, because some scammers can compromise the security of these apps. Financial literacy advises against linking your accounts to mobile money apps to prevent money loss should the security of the apps be compromised.
Without financial literacy, you can’t build a strong and secure financial future. These five financial literacy pillars will help you to secure your future. However, take note that all of the pillars must be considered and implemented holistically. Leaving one or two of the pillars out may send the whole financial literacy system crumbling. If this system seems daunting, yet you want a tried and tested program that has all the necessary financial literacy skills to help you enjoy your future, then we invite you to try our GuardianWealth financial literacy program today. This program is tailored-made for your individual financial needs and will guide you on your journey to financial freedom.