Financial literacy is not just about knowing how to read a balance sheet or learning about the best gratuity calculator online. It’s more than being able to recognize the difference between credit cards and debit cards. Financial Literacy is an essential skill for every adult. Learning it well can save you time, money and stress so that you can enjoy life. So, what are the most important concepts you need to learn in order to become a financially literate individual? Let’s find out:
- Understanding your paycheck
Financial literacy is not just about managing your accounts. It’s also about understanding how much money you make, how much you spend and where it goes. You’ll need to know how much money you’re likely to receive in a given month, for example, or what your overall financial picture looks like over a year. When it comes to personal finance a paycheck is not just money that you get paid, it’s an accounting of what you’ve earned in the past and will earn in the future. It’s important to know how much money you have coming in each month, but even more important is knowing how much money is going out each month as well.
- Creating a personal budget
A budget is key to any good financial life plan. Without one, it’s almost impossible to know where every penny is going and where it’s coming from. A budget helps you figure out what expenses are putting a strain on your bank account, and gives you an opportunity to manage those expenses accordingly — whether that means cutting down on unnecessary spending or splurging on something fun or special once in a while.
A personal budget is just like a household budget except it’s for one person instead of four people and it’s designed specifically for individuals who want to improve their financial situation. The goal of creating a personal budget is simple: cut back on unnecessary spending so that more money can be saved up for an emergency fund or retirement fund (or both).
Your personal budget should include all income sources: salary, pensions, investments, savings accounts and any other sources of income. Knowing how much money is coming in each month will help you determine which expenses are necessary for basic needs like food and housing — not luxuries like vacations or new cars.
- Determining your financial goals
You may have a general idea of where you want to be financially, but it’s important to think about what you will need in retirement. What do you want your monthly expenses to be? How much money do you want to save each month? What are your financial goals? Do you want to invest in a home, save for retirement or pay down debt? Once you set your goals, you can start determining the steps you need to take to achieve them. To calculate your earnings you could also use an epf interest calculator to estimate how much money is in your provident fund or an in-hand salary calculator to understand how much money you will be making per month. These calculations will help you set a realistic goal.
- Credit score
Your credit score is a number that reflects how well you manage your money, loans and credit cards and how responsible you are with them. It can help determine whether you qualify for loans, insurance and other financial products. Your credit score is based on the amount of debt that you have, the length of time it’s been since your last payment and how many payments are past due. The higher your score, the better it will be for you as a borrower because lenders will be more likely to lend money to borrowers who have good credit scores.
