Financial literacy implies to the ability to effectively understand and apply varied financial skills, including budgeting and financial management. As Kavan Choksi says, financial literacy often helps people to become self-sufficient, so that they can accomplish financial stability. Financial literacy ideally requires the knowledge of important financial principles and concepts like debt management, compound interest, and financial planning. On the other hand, financial illiteracy may cause people to make poor financial decisions that may have a negative impact on their financial well-being.
Kavan Choksi sheds light on a few practical strategies followed by financially literate individuals
Developing financial literacy to improve personal finances involve learning and practicing a range of skills associated with budgeting, managing, and paying off debts. Fortunately, no matter where a person is in their life financially, it is never too late to start practicing good financial habits. Here are a few practical strategies people should consider:
- Create a budget: People should try their best to track how much money they have every month against how much they spend. Their budget must include income, fixed expenses, savings, and discretionary spending. While income can include paychecks and investments, fixed expenses can involve rent/mortgage payments and loan payments.
- Build savings: People should select a savings goal like paying for higher education, decide how much they want to contribute toward it each month, and set that sum of money aside prior to considering other expenses.
- Promptly pay bills: Financially literate individuals always try to stay on top of monthly bills and make sure that their payments arrive on time consistently. They can make use of facilities like automatic debits from a checking account or bill-pay apps for this purpose, or even sign up for payment reminders by email or text.
- Get a credit report: People can request a free credit report once a year. They need to subsequently review these reports and dispute any errors by orderly informing the credit bureau of inaccuracies.
- Check the credit score: Having a good credit score helps people to obtain the best possible interest rates on credit cards and loans, among other benefits. They should try to monitor their score via a free credit monitoring service. It is important that people to be aware of the financial decisions that may raise or lower their credit scores.
- Manage debt: Financially literate people use their budget in order to stay on top of debt by increasing repayment and reducing spending. They would develop a robust debt reduction plan like first paying down the loan with the highest interest rate. In case the debt seems too excessive, one has to contact lenders for consolidating loans or renegotiate repayment.
- Invest in the future: If the employer offers a 401(k) retirement savings account, they need to sign up and contribute the maximum to receive the employer match. It is critical to open an individual retirement account (IRA) and develop a diversified investment portfolio of commodities and stocks. If required, financially literate individuals may even seek advice from professional wealth management consultants to help them to determine how much money they will need to retire comfortably and develop strategies to reach their goals.
As Kavan Choksi says, by following the strategies mentioned above, financially literate individuals can lay a robust foundation for a secure financial future. These strategies would allow them to be better equipped to navigate life’s financial challenges in a successful manner.
