A large number of people are financially buoyant but not financially literate. This is why many have problems with their financial status, that is, you see someone who has a huge amount of money, and yet complaining about being ‘broke’. This is because he/she is not financially literate. If all you know about money, is how much you have in your bank account, then that’s not good enough. It is never too late to improve your knowledge about financial matters. Increase your knowledge about investing, estate planning, social security, how credit cards work, credit scores, saving for the future, social security, real estate, insurance, retirement, and taxes. Tackle one topic at a time. Start with the one you are most interested in learning, and begin to build a solid foundation of financial know-how. Financial literacy is the ability to know and understand your financial status. To be financially literate is to have the knowledge, skills, and confidence to make responsible financial decisions that suit our financial situations. Our individual financial circumstances, change over time, so our financial knowledge and skills must evolve as well. To be financially literate, you must understand the difference between your Asset and liability are. A lot of us think once we have a house or car then we have an asset. This is a wrong assumption. Whatever takes money from your pocket is an asset. Your house or car is not an asset, because it takes money to maintain them. Even when you own your house, you still have to pay for taxes, maintenance and more. Am sure those who read “Rich dad poor dad’ by Robert Kiyosaki and Sharon Lechter, would know this.
In Financial Accounting, an asset is an economic resource. Anything tangible or intangible that can be owned or controlled to produce value and that is held by a company to produce positive economic value is an asset. If you own a rental property, that can be an asset—if it puts money in your pocket each month in the form of cash flow. When your tenant pays rent, they cover your mortgage, maintenance, taxes, and more. While liability is a future sacrifice for economic benefits, that an entity is obliged to make to other entities as a result of past transactions or other past events; the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. Once you know how much money you have coming in and going out, and you have a financial goal, you will need to develop a budget that allows you to save towards your goal. Follow this tips to develop a budget you can stick with: Keep a record of your monthly spending for several months. Include groceries, gasoline, clothing, lunches and dinners out, dry cleaning, school expenses, etc. Make sure that your record is an accurate picture of how you spend your money. Write a spending plan using your spending record as a guide. Eliminate unnecessary expenses, and reduce those, which may be too high. Revise your budget as necessary. When monthly bills change or are eliminated, your financial goals become different, or your income increases or decreases, a change in the budget is necessary. Your budget must be flexible in order for you to stick with it. Learn the difference between good debt and bad debt. Not all debt is the same. Here is how to distinguish between good debt from the bad debt:
Debt that helps you to build wealth is good debt. The most common example of good debt is a mortgage. School loans are also considered good debt, because of the potential value of the degree you earn acquiring the debt. A debt that continues to increase, as the item purchased decreases, is a bad debt. Credit cards are the number one bad debt among consumers. Car loans are also bad debt, because the value of the car decreases more quickly than the principle of the loan. To be financially literate, you’ve got to take a life-long approach to learning. No single article, course or download can make you a sophisticated investor. Rome wasn’t built in a day, but you can certainly build a big portfolio in few years. Stay committed to pursuing financial education throughout your entire life. I hope it helps. -ZainabAkanni