It is officially springtime, and the month of April is an ideal time to review your finances and change course as needed to meet the yearly financial goals you set at the beginning of the year. April is also Financial Literacy Month, a perfect time to spring clean your finances!
Knowledge around your finances provides that peace of mind you need to sleep at night without the proverbial counting of sheep. The benefits go beyond the ability to make better financial decisions, effective budgeting, and reaching financial goals to help maintain your mental health by creating less financial stress and anxiety and improving your standard of living.
There are more than enough facts and statistics out there to support the importance of financial literacy, especially in the light of today’s financial world. For instance, the average credit card owner holds four cards, and credit card debt levels are at all-time highs. More than half of student loan holders did not know about their future monthly payments before taking out the loan.
According to CFI Education, Inc., there are several fundamental components and skills to enhance your money and debt management. These skills resonate from those childhood ceramic piggy banks to dreams of a sunny retirement full of family, fun, and travel.
Let’s start with budgeting. A budget is determined by spending, investing, saving, and giving away, and with the right mix, results in financial security and prosperity. The key philosophy to a good budget is to pay off existing debt first and leave money for savings and investments.
Understanding borrowing is crucial, as most will need to borrow at least once in their lifetime. A basic understanding will reduce long-term financial stress. Terminology, such as interest rates, payment periods, principal and interest, maturity, and general loan structure, will help you make informed decisions.
Next, taking time to learn the components of investing may result in increased income. The mere glimpse into the world of investments can seem daunting, but there are resources and professionals in all areas of financial literacy to help you along the way. Some basics, in terms of investing, to familiarize yourself with include interest rates, diversification, risk mitigation, and common investment vehicles like stocks and bonds.
As the old saying goes, “Nothing is certain except death and taxes.” Taxes impact your net income and can generate from many income sources: employment, investment, rental, inheritance, and so on. Simple awareness of different income taxes promotes financial stability and performance.
Knowledge of each of the components and skills listed above improves your financial literacy leaps and bounds—allowing you to manage your finances with confidence and increased success. Growing your investments and savings while reducing borrowing and debt provides financial security, and with that, rest easy.