I have heard friends, and even some colleagues of mine, express to me that although they are employed and are making good money that they are not happy or they do not feel confident about their financial situation. Some of those people also express that they want to some day become a millionaire or become financially independent. I am often surprised by how many of them express the above feeling, only then to realize they haven’t done anything to achieve financial literacy. Their excuse is usually, ‘I don’t have time, or don’t know where to begin.’
My response to them has always been the same: “If you simply take the time to become financially literate, your path to financial independence or to becoming rich could not be clearer.”
What is financial literacy? Financial literacy is the ability to make sound financial decisions. Why is financial literacy important? In the age of credit cards, online shopping, and online banking, learning about managing money and taking charge and control of your debts, has never been more important. People needs to understand risk and plan for retirement.
I do not suggest that becoming financially literate is an easy task. It takes work, discipline and time, but the rewards are well worth it. Here are some key reasons why the very act of becoming financially literate could positively impact your life and make you rich:
1. Achieving financial literacy can help you realize that getting your debts under control is an essential steps toward a brighter financial success.
Paying off your debt and staying out of debt can be a hard thing to do if you don’t know how to tackle them. Financially literate people know exactly what to do in that situation. They know to set up a realistic budget. This way they know where the money goes and how much money they have left. They pay extra repayments on their debts to pay them off faster. They also cut back on their spending.
Another thing financially literate people do to stay on top of their debt is that they prioritize their debts. Sometimes, they pay off the debt with the highest interest rate first or they pay off the smallest debt first.
They also make it automatic. They know that a good way to pay off their debt is to set up an automatic payment from their bank account. Each month, they arrange a certain amount of money to go directly to their credit card debt or loan when they get paid. This way they are not late on their payment.
Another way financial literate people stay on top of their debt is that they consolidate or refinance their debt. If you have a lot of loans, you should consider applying for a debt consolidation loan to pay the others off. You then have to pay it back, but usually this type of loan carries a lower interest rate, assuming of course you have a good credit score.
See: 7 Simple Steps To Get Out and Stay Out of Debt
2. Becoming financially literate can help you realize that investing is a good way to grow your money.
Some People stash money under the bed instead of investing. Inflation increases the cost of living, meaning on average, you will need more money in the future to buy the same goods and services you buy today. Therefore, your money will be worth less in the future than it is today. To maintain your current buying power you will need to invest your money somewhere that will earn you at least as much as the rate of inflation.
3. Achieving financial literacy means you are not going to be easily scammed.
A while ago, I received an unexpected phone call from some unknown bank offering a once in a lifetime opportunity to invest in some stocks, promising returns of more than 40%. I recall the guy saying that I needed to act quickly as there were only limited opportunities available. At the time, I was broke. So I didn’t have any money to pursue that opportunity anyway. But upon some research, I found out that it was a scam. Several people had written bad stuff about that bank.You should hang up the phone immediately. Now some people will invest their money before they miss out.
4. Becoming financially literate means you will use cash more often rather than using credit card.
Credit cards charge a high interest rate so you are usually better off to save for things like a holiday. It will be cheaper in the long run as you won’t pay interest on it and you will enjoy it more knowing you worked for it.
5. Becoming financially literate means you will pay more than the the minimum payment on your credit cards
If you have $3,000 owing on your credit card at 16.5%. if you pay only the minimum payment due each month as shown on the card statement, the balance you owe will reduce very slowly and you will pay nearly $5000 in interest.
In short, being financially literate does take some time and discipline. If you’re determined to learn about becoming financially literate, you will know what to do when it comes to making financial decisions. So make time to read books about personal finance, business news, personal finance blogs, this blog, etc. It is one simple but effective step that will help you become financially successful.
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