Financial literacy in today’s society and how to save for a better tomorrow.

Written by Kristine Miosek

Have you ever felt that others around you are doing more with their money and you just don’t know where to start? Does even the thought of investing overwhelm you? If so, you’re definitely not alone. Managing money doesn’t come naturally to most people,
and it’s no surprise why. Personal finance is rarely taught in school, yet it’s a skill everyone needs to prosper in life. Financial literacy doesn’t have to be as scary as it might sound. It’s simply having the skills, knowledge and behaviors that help empower an individual to make informed decisions regarding money.

Let’s start with the basics. There are 7 principals of financial literacy.

1. Earn
2. Budget
3. Save and invest
4. Debt management
5. Credit
6. Protection
7. Financial planning

Being financially literate in today’s society is more relevant than ever due to the increasing complexity of personal finances, digital banking and economic challenges. Gaining knowledge about these core principals can help you take control of your finances and, if put into action, guide your life into financial stability.

How can we apply these principals today?

First, we need a starting point. Earnings. Your earnings may come from a full-time job, part-time work, freelancing, or even running a business. It all starts with income and taking control of how much money you have coming in. As it relates to earning, financial literacy is about developing skills, pursuing education, and securing employment that enables you to earn the income you need now but also in the future. Your income is the foundation upon which your financial stability rests.
Increasing your earning potential could mean broadening your skill set in a specific area, negotiating your worth, or even picking up a side hustle.

Next, we focus on Budgeting. This is putting a plan into action based on your earnings. With an effective budget, you can understand where your money goes and ensure you are living within your means as well as putting money away for the future.
A great budget can help to divide your income by essentials, spending, savings, and investing in the future. Some bank apps have budgeting tools in place to help consumers look at their spending in a pie chart. Making one yourself and keeping track
of spending on your own can also be constructive. Some people find it helpful to either have separate bank accounts and d
ivide their money to ensure their spending sticks to their budgets, or take out cash and divide it into separate compartments in their wallets.

Save and invest. Every dollar saved or invested today helps to set you up for more financial freedom tomorrow. Saving money can be hard, but also fruitful. Saving helps you achieve bigger desires like taking vacations, buying a new car, or putting a down payment on a house. It also can provide a safety net to cover potential emergencies and break the living paycheck to paycheck cycle. Even if you can’t save much right now, you can start a savings habit which could turn into something worth being proud of in the future.

Educating yourself on investment options like stocks, bonds, mutual funds and real estate can help with diversifying your portfolio and maximize potential returns. There is always risk in investing. Assessing your risk tolerance (level of uncertainty one is comfortable with in their investment portfolio) is essential in order to support your financial goals. If you are unsure about investing, consider a robo-advisor which can help automatically build and manage a portfolio based on your preferences, goals, and risk tolerance.

Search for savings accounts with high interest rates, build an emergency fund, and don’t forget to shop around as it relates to investments and interest-gaining opportunities.

Debt Management. Many people have debt at some point in their life. Sometimes it can be essential to invest in yourself and grow, like getting a college degree or buying a home. Other times, it can be unexpected, like medical bills or car repairs. Whether acquired debt is for your future or it’s unexpected, it’s important to manage it properly so it supports your financial growth and health. Think of debt in these terms: “Good debt” or “Bad debt”. Good debt, like mortgages or school loans, can increase your earning potential or net worth. Bad debt, like credit cards or personal loans, generally have high interest rates and can cause one’s debt to get out of hand rather quickly. Either kind of debt can have a negative effect on your life if you have a lot of it. It can restrict your ability to save money, cause stress, and impact your credit score and borrowing potential in the future. Things that can help with debt include listing all debt (principal, interest rates, and payments) to calculate how much is spent on debit payments each month, paying off high-interest debt sooner than later, and avoiding new debt.

Next, is understanding Credit. Your credit score impacts so many things in today’s society. This includes renting an apartment or home, getting a car loan, or obtaining a credit card. Some employers even consider your credit score when hiring. Ranging from 300 to 850, the higher the score the better. Having good credit could mean trustworthiness by lenders, likelihood of loan approvals, and lower interest rates. Building a strong credit score can take time, but is obtainable. Remember to pay your bills on time, keep credit utilization low (less than 30% of available credit), keep old accounts open (credit lengthiness matters), and check your credit report every year.

Protection. In today’s uncertain times, it’s essential when being financially literate to think through potential dangers to your finances and taking protective measures for security. As the saying goes, it’s better to be safe than sorry. It may be unlikely, but worth it to take the time to consider scenarios in how you can safeguard your finances. These may include insurance coverage, estate planning, and theft prevention. Banks even have tips and tricks to prevent fraud and stay alert to potential scams.

Financial Planning. Without a plan, it can be easy for money to be spent as soon as it’s earned. Like saving and investing for your future, planning gives you a map to achieve those goals. A good financial plan doesn’t have to be set in stone, it can be flexible and change when life changes. The idea is to lay out the strategy that can help you achieve your goals, but also periodically look at those goals and adjust as circumstances change. Your idea of what 10 to 20 years from now look like may not be the same in 5 years, but you get the idea and you know essentially what you want to achieve. You just have to make the plan to get there and adjust as needed. Set SMART goals (Specific, Measurable, Achievable, Relevant, and Time-bound), make goals more obtainable by breaking them into something smaller/more achievable, and work with a professional like a financial planner or advisor.

Financial literacy isn’t something that you can be proficient in overnight – it’s a lifelong skill that grows with you and with practice. If you start with these 7 principals above to begin building a strong foundation, over time, you may be able to master the skills to support your own financial stability. Having this knowledge in today’s society can help you make informed decisions that align with your long-term goals and gain a sense of control that makes managing your money less stressful and more rewarding.