Financial literacy is more than just a word. It defines a person’s financial knowledge and understanding, as well as how effectively that information is put into practice. It covers many aspects of working well with your finances such as budgeting, saving and growing your wealth. What makes financial literacy a verb is how important it is to not only understand these concepts but truly be able to apply them.
Being financially literate is vital to your personal and business finances. The same principles apply to both areas of your life. Therefore, when you improve your financial literacy and start practising it in your business, your overall personal finances should also be easier to manage. So, where should you start? Let’s explore.
Components of Financial Literacy
Some of the key components that financial literacy consists of are:
Earn: To manage your money, you have to have money. Your earnings will be your generated income from sales, purchases, interest on investments, or any other passive income.
Spend: Expenditures of any nature need to align with your financial goals. This can cover running costs, funds invested in stocks, acquiring stock, and buying assets. All decisions need to be carefully considered and avoid unnecessary debt.
Savings: For financial stability, it’s important to save funds where possible. It will be useful when sales are slow or bad clients leave you in financial turmoil. Save for a rainy day, as the saying goes…
Investments: Investments are one of the ways to meet your long-term financial goals. It helps you to grow your existing earnings.
Protection: Financial literacy is also understanding how to protect your money and prevent potential losses. This includes insurance, and protecting yourself against fraud or cyber-attacks on your bank accounts.
Borrow: In business, it is necessary to sometimes borrow money. However, borrowing responsibly from a lender is an important part of being financially literate.
Donations: Being charitable is not only a good mindset to have but can result in tax benefits.
Taxes: Speaking about taxes, these are also a vital part of financial literacy as you need to know why and how it is deducted. You will also need to understand what makes you tax-compliant.
Benefits of Being Financially Literate
Becoming financially literate has a multitude of benefits. All of these benefits tie into making the individual more financially empowered in their decision-making.
- Prevents you from making devastating financial mistakes
- Fortifies you against financial emergencies
- Improves your chances of reaching financial goals
- Makes you less vulnerable to financial fraud
How to Become Financially Literate
If you are lacking in your knowledge about this topic, the good news is that you are heading in the right direction: You are reading this article!
Becoming well-versed in your finances starts by obtaining knowledge. You can achieve this by reading blogs, books and guides about financial literacy. Listening to podcasts and obtaining other content about the topic.
There are many free resources available that you can start with. Additionally, if you are still feeling like you don’t understand it, you can reach out to a financial advisor to guide you.
Next, you need to practice what you are reading and listening. Use the strategies that you are learning.
Strategies to Employ
Here are several practical strategies to consider.
1. Create a Budget
The quickest way to start becoming financially savvy is to set up a budget. This will help you see what your earnings and expenses are, giving you immediate insight into where you are spending on non-essentials, or where you need to look into areas of business that are bleeding money. It will also indicate what funds you have available for saving or investing.
2. Know Your Credit Score
Knowing your business’s credit score is vital. You will have to know this for loan applications, as well as understand how to create a healthy score.
3. Use Financial Tools
Many banks have tools that can help you budget by automatically allocating transactions to set categories. If you are not comfortable with this, you can track your budget the old-fashioned way: With a Budgeting Template.
4. Save First
Where you are able to, it is a good idea to put a set amount away in your savings before you use funds for anything else.
5. Pay Bills On Time
Paying your bills when they are due is a simple way to ensure you stay on top of your finances.
6. Manage Debt
If you have debt, you need to ensure that you increase your repayment to not only keep up with debt but conquer your debt as quickly as possible. This will save you time and money in the long run.
Financial literacy is key if you want to ensure that your business’s finances are healthy. If you are not already knowledgeable about the topic is, the good news is that you can learn. Practice what you’ve learnt, because practice makes perfect.
Struggling to become financially fit? Reach out to an expert on SME Advice to become financially literate.
Financial literacy is more than just a word. It defines a person’s financial knowledge and understanding, as well as how effectively that information is put into practice. It covers many Read More
