Financial Literacy
Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. Financial literacy is the foundation of your relationship with money, and it is a lifelong journey of learning. Without it, it can lead to serious problems in life.
To be financially literate is to know how to manage your money well. This means learning how to pay your bills, how to borrow and save money responsibly, and how and why to invest and plan for retirement.
In sound financial literacy, you budget, save and protect your savings. Whenever you spend, you spend wisely. In case you make big purchases, you do so for things that are worthwhile.
Principles of Financial Literacy
What are sound financial literacy principles that can guide you? Here are a few:
01 Create a budget and judiciously follow it
You need to track every cent you spend. Make a list of everything you need to buy monthly and stick to that budget as much as possible.
02 Determine your Financial Goals
We all know that it is important to save. Financial goals enable you to save and plan in order to achieve your financial goals, whether long-term or short-term. Short-term financial goals could be like saving to buy an expensive phone, car, clothes, computer, or such. Long-term goals could be building or buying a home, saving for retirement or for you children’s education.
03 Manage your debt
It is prudent to manage your debt and reduce it as much as possible. Pay off the high interest loans first to enable you with enough finances to do other things. Avoid high interest loans as much as possible. Learn to live a simple life that attracts as little debt as possible.
04 Protect yourself and Family
Insurance is an important part of your financial strategy. Are you protected in case of death or injury? Is your family protected? Your insurance needs will depend on your age or circumstances. It is wise to take the appropriate covers to protect you against loss.
Another way of protecting your family is through a will. Have a sit-down with a lawyer and draft a will. This will ensure you protect your family in case of death.
05 Understand how much you earn less tax
Understand and calculate how much tax your country demands. Do not assume that all money that passes through your account is yours. If you are doing business in Kenya, for example, calculate 16% VAT and keep in mind 30% corporate tax.