5 tips to enhance your financial literacy

What is financial literacy? It usually refers to the knowledge and skills that are required to (successfully) manage your financial situation. Becoming financially literate, or trying to, will help you to understand financial concepts, interpret financial statements and learn how to grow and develop a strategy that will help you achieve your long or short-term financial goal.

In recent years the notion of financial literacy has become increasingly relevant and has turned into a talking point even among younger generations. Investment options nowadays are almost infinite, and so are other financial services. Without a sound ground knowledge of what means what, it can be challenging for people to navigate their options.

Retirement planning has slowly started to shift from a “traditional” state-panned pension plan, to a system that relies largely on individuals. Given the increased responsibility for your future and your pensions, it is crucial to build and grow knowledge and skills in order to manage your finances in the years to come. Especially given the wave of uncertainties and market fluctuations are a stark and somehow grim reminder of the importance of knowing how to handle one’s private finances.

1. Understand the basics

Study! Beginning your journey means understanding the fundamental concepts of personal finance. It doesn’t matter if you feel you can master them or if you can’t see yourself as a finance genius. Learn about budgeting, saving, investing and topics such as debt management and compound interest as soon as you can. Read, watch videos online, source information from books, articles and financial courses. You might want to look up what your local university offers. When it comes to public universities, you should be able to just walk into classes and have a seat. By keeping your mind open and embracing a learning mindset you should be able to set yourself on the right path.

2. Source reliable information

The internet and physical establishments around you can be a great source of information. Websites such as Investopedia, NerdWallet and The Balance are great sources of information and provide comprehensive guides, articles and tools on a plethora of financial topics. If you’re not into reading, you could focus on podcasts or informative videos instead. Podcasts hosted by experts, advisors and professors cover a wide range of topics, and you might find it easier to follow them during your commute or while you work out, without having to take time off other activities. If you’re active on social media you might want to follow financial experts on Instagram, Twitter on LinkedIn. You might be able to find valuable tips, insights and interesting information on the news and latest developments of the world of finance.

3. Create your own budget

Creating a budget and learning how to do it effectively is the cornerstone of sound financial management. Write down your income and expenses to create an “all including” comprehensive budget that reflects your priorities and that you feel you’ll be able to follow without giving up too much and making too many sacrifices. Tracking your spending and building a comprehensive list of your income will help you learn about your spending patterns and where to cut back, allowing you to build a strong financial foundation.

4. Mind your taxes

A huge part of financial literacy is based on a good grasp of the basics of taxation. Learning about the different tax deductions, credits, how to report your income, when and where to pay your taxes will save you money and headaches. Depending on your country of residence, you might want to hire a tax professional or a tax advisor to make sure you’re doing everything right and that you’re taking full advantage of your tax situation.

5. Learn about debt, and how to clear it

Debt can make you or break you. Debt is a crucial point when it comes to financial literacy, as it plays a huge role in people’s financial lives. Studying and understanding debt allows people to make the best-informed decisions when it comes to borrowing money and managing a long-term commitment such as a loan. Credit card debt, mortgages and personal loans are just some of the many forms that debt can have, and each one comes with potential risks (and benefits) that need to be assessed through an in-depth study of the matter. Being financially literate will help you avoid the biggest “traps” and strategize a way to repay debt and mortgages in a timely manner, minimising interest costs and avoiding fines.

Building financial literacy is a lifelong journey that requires discipline and an open-minded approach. Start from the basics, and use all the resources you can get your hands on: podcasts, libraries, Twitter or LinkedIn professionals are great sources of information. Creating a budget and learning all there is to know about debt and debt management, together with the awareness that financial literacy is not just about accumulating wealth, it’s about financial security and the freedom to live the life you desire.