Financial literacy is a crucial skill to have for reaching peace of mind and achieving financial independence. People in an unfortunate financial situation not only have to endure a lower quality of life, they also face higher levels of stress and have more family problems. In today’s modern world where finances encompass almost all aspects of our lives, it is important for people to be financially literate to avoid these problems. Especially with the rampant worldwide inflation that chips away our purchasing power, financial literacy is more important than ever. This is why we compiled a list of some useful financial literacy tips. Although some of these tips might seem simple or reductionist, many people are not aware of these tips, making it essential to discuss them.
1. Avoid using credit cards
Although it might be absolutely necessary to take on debt for extenuating circumstances and emergencies, taking on debt for an extravagant life style is never a good idea. Saving your money to buy your dream car, use a newer phone or buy your favorite dress is better than relying on future cash inflow to pay off your debt. The extra interest you have to pay is also not great for your finances.
2. Pay your debt on time
Even if the amount is insignificant, it may have large effects for you in the future as paying your debt on time is one of the most significant factors that affect your credit score. If you need to take a mortgage in the future, your credit score will be the single biggest factor that affects your mortgage rate. A mortgage rate a few percentage points higher may translate to thousands of dollars more interest payments in the future.
3. Start saving for retirement early
Because of how compound interest works, saving small amounts of money in the early years of your life may have greater impact on your total savings than saving larger amounts of money in the later years of your work life.
4. Start an emergency fund
You will never know when the next disaster will hit you or your community. Having an emergency fund will allow you to avoid liquidity problems and may prevent you from selling off your property below its market value in times of crises.
5. Take good care of your health
Especially if you are in a country that does not have universal health care, a minor injury can cost you your life savings if you are uninsured. Researching and finding the best insurance plan for yourself and your family, therefore, is extremely important.
6. Set A Budget and Stick To It
Setting a budget that goes according to your means and income is one of the best ways to not go overboard and staying with your reasonable limits. It also ensures that you are allocating only a certain amount of your income to spending and the rest for other sections like investing and saving.