Financial Literacy – The Secret Key to Growing Your MoneyOctober 27, 2018
There’s no doubt about that.
How well we understand money and its components can play a crucial role in achieving success.
With proper financial education you can make better financial decision.
1. You will know the importance of keeping a budget.
2. You will know why you must save at least 20% of your salary every month.
3. You will understand the different funds you should own throughout your life span (i.e. emergency fund, opportunity fund and retirement fund).
4. You will be able to choose and assess the right vehicle to invest.
5. You will learn to create smart financial goals and achieve them one by one.
6. You will understand ways to grow your salary and not just rely on one income.
7. You will enhance your overall money management skills.
8. You will be able to manage your debt better or more so be debt-free.
9. You will be a conscious spender, assessing your spending habits effectively.
10. And more!!!
Ultimately, financial literacy can help all of us become better stewards of our finances.
If only we were taught about how money works, how to save, how budget and how to invest when we were young.
Then maybe the moment we received our first paycheck, we’ll know what exactly we need to do.
Here’s what I firmly believe in:
The more you know… The better you will be when it comes to your money.
With this post, I hope to achieve the following:
1. Explain to you what financial literacy is all about;
2. Give you reasons why financial literacy is the secret key to growing your money;
3. Present to you different ways you can improve your financial knowledge
Let’s get started!
What is Financial Literacy?
Financial literacy is the understanding of money and everything in between including budget, savings, debt payment, retirement, investing and making money on the side.
A financially literate person is someone who sets goals, plans his/her actions, budgets, saves, invests in stocks and accumulate more wealth than debt.
Someone who has no problematic credit card debt or mortgages.
Has savings or an emergency fund ready.
Maintains an investment portfolio for his or her retirement needs.
And does not live on one income alone.
Sadly, many Filipinos are still seen as “financially illiterate”.
According to a statement made by Bangko Sentral ng Pilipinas, Filipino adults can only answer three out of seven financial literacy-related questions.
This poor financial literacy among Filipinos begins with poor childhood education that persists until adulthood.
Why Financial Literacy is the Secret Key to Growing Your Money
Financial Literacy is such an important aspect to achieve your financial goals. You are creating the very blueprint of your financial life.
Learning about it has a huge impact in our life mostly for the following reason:
Reason #1. Understand the value of money
The first reason why financial literacy should be taken into consideration is it can help us understand the value of money as a tool.
Money is a strong resource for a man. It can buy a power, prestige and luxury. Unfortunately, money can also bring hatred, greed and dishonesty.
That’s why learning how to correctly spend your money is important. You have to be equipped on how money works if you want to really develop your path to financial freedom.
Financial Literacy is not only centered on budget, savings, investment and others.
Proper spending is also discussed. Once you’ve mastered how to properly consume money, you will adopt true discipline to be the person that you wanted to be.
No longer will you waste your money on expensive things. Instead, you will be able to prioritize your needs versus your wants.
Reason #2. Teach us how to better manage our finances
Managing one’s money is a personal skill.
And just like any skill you need to develop it day by day. You have to be willing to learn.
When you become financially literate you are able to manage your handle your money better.
- You’ll know how to set up a budget that works.
- You’ll understand the concept of emergency fund.
- You’ll avoid debt as much as possible.
Money will no longer control you but you will have control of your money instead.
Allocating each in its proper place.
Money will no longer rule your life and your future. You will stop worrying about the future and what it would bring.
You have the confidence because you because you know how stewardship works.
Here are the first five personal finance basics you need to master as you increase your financial knowledge:
A Budget is a powerful personal financial planning tool that is done/written daily, weekly, monthly or yearly where you allocate how much your spend and/or save.
This also keeps track of your spending patterns, record your income and assess whether you are spending more than you should be.
Budgeting will give you a clear picture on how much money you have, what to spend it on and how much will be left for your savings.
How to Make a Budget?
Below are steps on how to create a budget.
1. Record Your Income.
Take not of your salary or any other extra income. If you receive a regular paycheck make sure that you record how much your take home pay is.
2. Create a List of Your Expenses.
Your expenses will be your budget categories or simply the items where you will allocate the money with. READ: Budget Categories post
3. Keep Track of Your Spending.
If you want to commit on your budget then you should learn to keep track on where your money goes. This is part of a successful budget because you know exactly the movement of your hard earned cash. Visit My New Budget and Spending Tracker or create your own with my DIY Spending Tracker post.
How to Make a Budget Work For You?
It will be very hard to maintain a budget. I shared my personal struggle in How I Still Choose to Love Budgeting Even If It Doesn’t Love Me Back. I am not perfect when it comes to my finances and I do have my fair share of short comings.
But the one thing that help me make my budget work is setting my mind, heart and soul for it.
You have to really commit to the habit.
Never let yourself miss one day or one week or a month without a budget. Make it part of your financial routine. Reflect on areas where you spend more than you should. Then reward yourself if ever you successfully budgeted for the said month, week or day.
Savings will determine how much you love yourself. It is exactly described as the pay yourself first policy.
Before you spend your money on anything else, you need to give back to your personal fund first.
Whether you are saving for your emergency fund, future fund or adventure fund, you need to have enough money saved.
How to Save Money?
I have shared how to save money on last week’s Reader Question post but as a recap and summary below are the key steps you need to do if you want to save. Again all explanation will be present in the previous post.
1. Determine your current financial net worth
2. Decide how much you want to save
3. Create SMART Saving Goals
4. Automate your savings
How Much Should You Save in a Month?
You can either follow my 50-20-30 Rule of Budgeting where 20% of your income is automatically set to a saving fund or have your own assessment on how much you can save in a month.
Start low but consistently then increase your savings as your income increases.
The key in saving money is treating it as a non-negotiable expense. Income – Savings = Expenses. Make saving the first bill you’ll pay.
One’s spending method says a lot of the lifestyle he or she has been raised with. Proper spending also plays a big part in good financial planning.
How to Correctly Spend Your Money?
1. Spend Within Your Means
Always be mindful of how much income comes in your resources and learn to spend below its total amount. Do not try living a costly lifestyle that you can’t afford for you will only be the one to suffer in the end.
2. Spend Within Your Budget
A budget plays a big part in your spending routine. Everything that goes out of your cash flow must agree in the budget you set with it. Spend within the amount written in your budget.
3. Spend Intentionally
Buy things that sparks joy that lasts longer. Intentional spending is being very aware of what you are purchasing. You know exactly what is it for and why you need it.
4. Spend For His Kingdom
God is the ultimate source of wealth. He is the sole reason for every blessing that comes in your financial life. Tithe no matter what. Spend your talent, your time, your efforts for His glory.
An investment is an asset or item purchased with the hope that it will generate income in the future.
Investing on the other hand is the act of committing money or capital to a a business, project, real estate or other vehicles with the expectation of obtaining profit.
How to Invest?
Investing takes risks and has no guarantees. It is important that one must research and learn more before finally deciding on something.
2. Choose an Investment Vehicle
There are many investment vehicle that one can choose from to grow their money.
The most common investment vehicles are those with your bank like savings account and time deposit.
Other option includes mutual fund, direct stock investing and real estate investments.
Assess what investment vehicle match your investment goals and the type of investor you are.
3. Let Your Money Grow
Make time your best ally.
Invest early and invest long. You will never see the full potential of your money if you don’t let it grow.
Treat your investment as a non-negotiable one just like saving money. Save and Invest rather than Save to Spend.
Retirement plays a crucial part in one’s personal finance.
What’s important to take note here is that you need to be able to enjoy your retirement.
So you have to plan early.
How you budget, save, spend and invest your money today will determine what kind or retirement you will live in the future.
A flawless personal finance planning will enable you to enjoy your retirement even better.
Related Post – Best Retirement Account in the Philippines
Reason #3. Releases us from poverty mindset
Poverty mindset is the “poor me” attitude towards money.
It is commonly characterized by being always in the state of lack.
Have you ever met a person who constantly says “wala akong pera” or “hindi ko afford yan”?
Someone who always answers with a negatively to what you suggest or say he or she should do?
Those who only see the things that they don’t have instead of being thankful for what they have.
Worry is a natural feeling. However, there are those who overly worry about money is something that greatly affects one’s ability to be rich.
The moment we learn to manage our money and expand our financial literacy, we begin to graduate from poor mentality to abundance mentality.
We are no longer focusing on what we don’t have. Instead, we will be able to utilize our strengths to accumulate wealth.
5 Ways You Can Gain Financial Knowledge Today
There are a whole lot of concepts that one must understand before, during and after the investment period.
From the financial products to choose, amount needed to save to the money that you need to have in order to retire peacefully, that can be overwhelming for beginners.
Thankfully there are far more and easier ways to gain financial knowledge today.
1. Others testimonials
You may be blessed with parents who have been very well in terms of their finances or just mere acquaintance that you know are good influence.
You can engage in communication with them and ask for their success stories. How they manage their money and how they were able to survive the day to day living.
2. Finance blogs
Blogs are just the 21st century authority. Whenever I search something especially reviews and experience on a financial product I will consult other blogger’s account. I guess it adds that blogs have a personal touch.
3. Finance books
I started falling in love on the topic of money, finances and business because of books.
Every time I stroll in the mall I will always grab a quick visit on the bookstore and spend an hour just browsing for books in the business and investment section.
Just recently I fell in love with Rane Panaligan’s The Law of Leverage as it is an all in one book. I also manage to review books such as Kuntento Ka Na Ba sa Kaperahan Mo?, You Can Be Rich and It’s Your Money.
Need book recommendation? Check these 18 Books on Personal Finance, Productivity and Self-Help
4. Finance Magazines
From Entrepreneur, MoneySense to Good Housekeeping… these magazines include financial tidbits that could help you gain financial knowledge.
If you are easily bored with long passages of books then maybe a magazine style will be better. You can just browse this when you have time and you’ll be good. This also appears to be more on the visual side.
5. Financial Seminars
The best way to gain financial knowledge will most probably be attending seminars.
In seminars there will be a focused topic that you’ll enjoy learning with the others. You will be listening on a financial educator that can be your mentor too.
Financial seminars here in the Philippines can be mailap and even pricey but they are all worth it.
Attending talks and workshop is the best option for you can actually start applying the concepts too. I love attending seminars even if not financial related.
Final Notes from SavingsPinay
In conclusion, financial literacy is truly the secret key when it comes to growing our money.
The more we understand money as a tool and the different tips and tricks when it comes to managing it, the more we will be able to achieve true financial independence.
Here are some snippets from this post I’d like you to remember when it comes to financial literacy:
1. Financial literacy is the understanding of money and everything in between including budget, savings, debt payment, retirement, investing and making money on the side.
2. Financial Literacy is important because of three main reasons. First, it helps us understand the value of money. Second, it teaches us how to better manage our finances. Lastly, it releases us from poverty mindset.
3. There are five ways you can gain financial knowledge today. 1.) Hearing others testimonials, 2.) Reading financial blogs, 3.) Reading financial books 4.) Reading financial magazine and 5.) Attending financial seminars.
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Izza of SavingsPinay helps Filipinos bridge the financial literacy gap one content at a time by providing insights and tips on budgeting, saving, investing, side hustle and growing your net worth. Aside from this blog she also writes at www.izzaglinofull.com, a beauty and lifestyle blog for frugal Pinays and manages, www.izzagevents.com, a wedding and event business since 2011. For inquiries, topic suggestions or future collaborations email her at firstname.lastname@example.org