Financial Literacy: Foundation of your relationship with money

Financial Literacy means the presence of a set of skills and knowledge in an individual to make informed and effective decisions with all the financial resources. In short, financial literacy is a foundation of a person with money and it includes financial management, budgeting and investing. The early you start practising, the better it will be for you across life.

Understanding basic financial concepts allow people to know how to navigate the financial system. People with appropriate financial literacy training can make better financial decisionsinancial decisions and manage money better than those without such training.

The most important part of being financially literate is that such people are less vulnerable to financial fraud, which has increased in India in the last few years and has almost tripled since the outbreak of the COVID-19 pandemic. It also helps them in making decided life goals like the use of debt responsibly, saving funds for different purposes like education and retirement and running a business.

In fact, household budgeting, knowing the art of managing and paying off debts and evaluation of investment and credit products also falls under the umbrella of financial literacy. These skills need a working knowledge of key financial concepts like compound interest and the time value of money.

An absence of financial literacy in modern society can damage an individual's long-term financial success. It could lead to accumulating unsustainable debt burdens due to bad spending decisions, which can lead to negative consequences like poor credit and bankruptcy among others.

Concept to improve Financial Literacy Skills

To get themselves financially literate individuals need to learn and practising a variety of skills to manage their personal finances like budgeting and a good understanding of debts as well as credit and investment products. Few of the steps that one can practice involve:

Budget Creation: The way states and the country create their annual budgets of expenditure and income from different sources at the start of the financial year, individuals can practice the same but monthly. In the process, you can track the amount of money that you get every month and then calculate your expenses including investments, tuition fees of your child along with the rent, loan payments and discretionary spending and savings.

Timely Payment of Bills: Make sure to pay off the monthly bills of your utilities like electricity, gas connection (if postpaid) as well as phone bills among others. For this purpose, you can take the help of automatic debits through your account or set payment reminders for those bills.

Maintain Your Credit Score: Have a tab on your credit score and try to maintain it at the best levels as a good credit score will help you in getting the best financial opportunities on the loans among other benefits.

Manage Debt: For this purpose, you can reduce your spending, if possible on nonessential items, and try to save that amount, so that you can pay off your loans at the earliest or before the tenure ends and be free from the burden that you carry with you. This will help you in planning for the future.

Investment for Future: Future means, post-retirement period and you should plan for it at the earliest and as a young. You can plan about the funds that you may require after retirement even with your first paycheck. The early you decided about the future, the better you can plan for it. In the process, you can plan and invest in diversified investment programmes like fixed income, insurance as well as stock markets. For this purpose, you should seek advice from professional financial advisors who can help you to determine how much money you will need to retire well and spend a life of luxury.

These skills would help you in being financially strong throughout your life and plan your finances/money in a better way.