Developing financial literacy is an important part of managing money properly, and I believe it involves more than simply technical knowledge. It all starts with adopting the correct financial mindset and behaviours. Personal money management, which includes controlling your income and expenses, is the cornerstone of financial literacy. Once you have a solid understanding of this notion, you may start looking into external ways to grow your money. Essentially, becoming financially literate entails mastering personal money management before moving on to larger financial goals.
Tracking daily expenses
When it comes to keeping track of our finances, many of us overlook the importance of tracking our daily expenses. At a bare minimum, we should be monitoring where our money goes on a daily basis to get a sense of our spending habits and identify areas where we might be overspending.
By monitoring our monthly expenses, we can spot mistakes and errors that occurred in the previous month, such as accidentally missing a credit card payment and incurring a late fee. Although forgetting to pay on time is a common mistake, setting up automatic payments or direct debits can help prevent these fees from accruing in the first place.
When dealing with financial institutions, being assertive and persistent can sometimes pay off. For example, if you encounter a late fee and want to have it waived, try approaching the customer representative with conviction and data to back up your claim. Point out your history of on-time payments, your status as a valued customer, and the size of your transactions. Using the principle of “you” from Dale Carnegie’s “How to Win Friends and Influence People” can also be an effective tactic.
Regarding mortgages, it’s important to only take out loans that you can comfortably repay, ideally by investing the same amount as the loan’s EMIs in savings, bonds, stocks, or funds. Doing so can help offset the final burden of the mortgage. Similarly, it’s crucial to manage other financial obligations like pension plans, health insurance, and car insurance effectively.
In essence, true money growth begins with mastering our own personal finance management. It’s futile to attempt filling a bucket with holes in it, so ensuring that our financial management is tight and secure is paramount.
Identify our own type as investor
When it comes to managing and investing money, it’s not always intuitive. And unfortunately, it’s all too easy to end up like many others who simply don’t take action. But the truth is, people fall into different categories when it comes to money management.
There are the “A’s” – those who are already actively managing their money and looking to optimize their strategies. Then there are the “B’s” – the largest group of people who aren’t doing much with their money, but could be convinced to change their ways with the right motivation.
And finally, there are the “C’s” – a tough crowd to crack. These folks have a seemingly endless array of reasons and excuses for putting money management low on their priority list. While it’s theoretically possible to motivate this group, it’s incredibly challenging.
When it comes to managing our money, it’s important to take an honest look at ourselves and determine which category we fall into. Are we actively managing our finances and looking to optimize our strategies, or are we not doing anything and could use some motivation to change that? Or perhaps we’re part of the group that’s harder to convince to prioritize money management.
Once we have that self-awareness, we can create a plan to upgrade our skills and overcome any obstacles or challenges that arise. Maybe we need to find the right motivation or break through mental barriers. Whatever it is, taking action towards better financial management is always a step in the right direction.
Initial steps after solid grip on conscious spending
After getting a solid grip on conscious spending, we can explore options like opening a stocks and shares ISA or brokerage account. Mutual funds can be a good starting point since they offer a mix of stocks, bonds, and other assets. However, it’s crucial to do our homework and learn what makes a mutual fund great or disappointing. Consider factors such as its history, performance in both bull and bear markets, and the underlying causes.
Studying financial literacy has personally influenced my decision-making when it comes to the stock market. By educating myself on the ins and outs of investing, I’ve been able to make informed choices that align with my financial goals and values. Ultimately, staying curious, informed, and proactive is key to financial success.
I recommend that everyone read the books “I will teach you to be reach” by Ramit Sethi, “The little book of common sense investing” by John C. Bogle, “Stock Market Investing for Beginners” by Jam el Bradfrod, and “Buffett the Biography” by Roger Lowenstein.
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