Deep Dive into Financial Literacy

Deep Dive into Financial Literacy

  • November 15, 2016

Budgeting

One of the first steps to reaching financial security or self-sufficiency is to set up a budget for yourself:

Simply put, a budget is an approximate evaluation of the difference between the money you get and the money you spend all done through calculating your potential expenses and comparing them to your income. Controlling your spending habits and needs based on the results will help ensure that your gas payments, gym membership, and cell bills don’t go unpaid, you’ll even be able to save some money for times of need. Here’s a little breakdown on how it works:
(A budget is usually calculated on spreadsheet).

- Add up your income (your salary, fee and or allowance as well as profits from investments).
- Estimate your expenses (rent, healthcare, transportation as well as clothing and phone bills etc…)
- Subtract both amounts (the final result will be a positive or negative number).

The ideal end-result should be a positive number, otherwise you would be spending more money than you make. A positive result therefore means you have some money left at the end of each month and saving up that money might prove highly beneficial later on.

The key to affordable personal finance resides in making more money than you spend, with that in mind, a set amount for you to spend on non-essential items (entertainment, dining out, gym and sports, vacations etc…) should be determined every month thus guaranteeing a lifestyle you can comfortably afford.

Having a budget on its own will not necessarily change the way your money flows, it is a mere observation of how you make and spend. Once you’re aware of how your weekly or monthly spending occurs, you can start making changes to the way your cash is handled in order to save up, reach a certain goal or maybe just get to an economically stable point in your life.

Here are some tips on the ideal budget breakdown:

 
-The money you make today can be key to unlocking tomorrow’s opportunities, in order to be sure you won’t miss an occasion to participate in something big, a certain percentage of your income (ideally 20%) should be set aside for saving and investing.
-Essential utilities, such as transportation, healthcare, food student loans or any form of pre-existing debt should take up a majority of your income: around 60%.
-The final 20% should cover discretionary expenses, which means clothing, dining out, personal care, gifts or charitable contributions.
Organizing your spending based on those parameters and changing the way they flow depending on the results you’re looking for will help you reach goals and pivotal points you’ve set yourself up for in an organized and evaluated manner: optimum spending for optimal results!


Setting goals is important:

 
Setting up certain goals for the future might be a harder experience than it seems, sometimes we seem to be headed in a direction and wind up completely lost, a great way to make sure you’re well on your way to reaching what you’ve strived for is to make your goal a SMART one.
What is a SMART goal? Taking apart the acronym through an example might shed some light:

Let’s say one of your goals is going on a vacation, there are multiple factors that will determine whether this goal is a SMART one for you:

-The first starts with S, for “specific”. A specific goal is one where you know exactly what you want or need: this particular case being a vacation or trip abroad there are a few things you need to have like airplane tickets and accommodation, as well as some cash to spend there (some of us also like to have an emergency fund on hand as well). Your trip will therefore round-up to “X” sum of money, and that is a specific goal to reach.
-A second factor that determines a SMART goal is that it’s measurable, hence the M. Knowing the progress you’re making towards a goal and having a near-exact idea of when you will reach it makes it a measurable one. For the case of your vacation it’s all about figuring out how much you have and how much you need to be able to afford it! Your budget and the way you handle your money should also be taken into consideration when saving up, no need to shamble things up!
-Attainability defines the A, it represents a goal that you can reach through planned-out, simple and reasonable steps. Your trip will start looking more and more like a reality once you break-down the steps you’ll need to get to it: step 1 could for example be as simple as giving your personal funds a small increase for a few months thus saving up more money for the price of some leisure and luxuries.
-Another defining point of a SMART goal is that it’s Relevant, which means that its end result is ultimately your full benefit. Although going on vacation does seem beneficial at any given moment, going on a trip during a working peak at your company will make it lose relevance since you’ll be coming back to an overwhelming amount of work.
-T ends the word with “timeliness”, a time-relevant goal includes a precise date where you would ideally reach it. The case of a vacation makes this parameter a given, but it is just as important for any other goal you might set, having a deadline to reach your goal will strengthen your drive to reach it as well as challenge your productivity and help you work under pressure.

Savings (spend less than you earn)

The more you save now, the more likely it is you will have the money you need later in life. Starting small and building your savings over time can be a good step toward reaching your goals. Saving up money doesn’t necessarily require you to go to extremes, in fact the best way to induce change in life is to start-off with small long-term decisions that will have visible results in the near future.

Build up savings to cover life’s goals today to help you afford a comfortable tomorrow. Setting money aside every chance you get will quickly show you the upside of cutting back, and setting up clear goals will help motivate you to save up and also make you think twice before dipping into your savings on a whim.

Although saving up money seems like a pretty simple process, there are a few steps you can take to get faster results and make the whole process worthwhile:

• Know your “wants” from your “needs”: establishing this difference could prove to be the difference between achievement and failure.
• Create a budget for yourself.
• Carpool with friends so that you can all pitch in for the cost of gas: splitting bills and transportation with friends usually proves advantageous to everyone involved.
• Use a prepaid card to make sure you don’t go over the budget.
• Limit eating out: if you’re still at an age where you are accommodated by your parents or any family member, make sure not to spend your hard earned money on what you could get for free at home.

Credit and Debt

Choose wisely

Choosing a card for your finances can prove to be a tricky task, especially if you want the card to work for you rather than the opposite. To turn the ordeal of choosing a card into a quick and simple procedure, there are a few aspects of the card to ask about such as the annual fee and payment terms but also aspects that don’t involve direct spending such as cash withdrawal fees. Knowing about these parameters will help you know if your card is costing you more than it helps; taking overall benefits of owning the card to see if they apply to your lifestyle is an additional guideline to follow.

Stay alert

Cards can be a big addition to your lifestyle and help you better manage your finances if they are put to good use. Making the most out of something is the best way to enjoy it, here are some tips to make sure owning a card remains enjoyable:

• Maximize the use of rewards like cashback, bonus, or loyalty points.
• Always pay on time.
• Track all your expenses through your monthly statement.

Understand your right

- The 20-10 Rule:
Credit cards are loans, so avoid borrowing more than 20 percent of your annual net income on all your loans.
- Cut and Heal Spending:
The best way to save money is to stop spending it. This way you will be able to reduce debt load.

Don’t forget to keep sales and receipts (you never know when you might need them).

 

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