Financial literacy is the ability to understand and effectively use a variety of financial skills.
Examples are money management, budgeting, investing, etc. According to Investopedia, people who are financially literate are less vulnerable to financial fraud and are more likely to achieve certain life goals such as saving for big life events, using debt responsibly, or even running a business.
Not everyone is taught these skills early in life, but it’s never too late (or too early) to learn or sharpen these skills. We have broken down some of the simplest ways to increase financial literacy and set yourself up for success down the road.
Pay yourself first
Many people might hear this and think, “Treat yourself first!” But this is not the case. This phrase references contributions to your personal finance before paying your other expenses. The goal is to ensure enough income is saved or invested before monthly expenses or discretionary purchases are made. It can be tempting to skip these contributions when other expenses arise, but consistency is key. Examples of paying yourself are below.
- Contributing money to your retirement accounts (401k, Roth IRA, etc.)
- Buying insurance
- Paying into a health savings account
- Creating an emergency fund
- Paying off debts
Managing bill payments
Knowing where your money goes month in and month out is a big step in becoming more financially literate. If it’s difficult for you to keep track of due dates and amounts, there are some ways to help keep you organized and get payments submitted on time.
- Enroll in auto draft or auto-debit
- Utilize bill-pay apps such as Mint, Prism, Bill Tracker, BillMinder, etc.
- Sign up for email, text, or mail payment reminders
- Make a checklist of all your monthly bills
By utilizing and sticking to your budget, you can begin to pay off debts, especially those with high-interest rates. Developing a debt-reduction plan can allow you to meet payoff goals and become debt-free in the long run. There are several strategies to managing debt, but it’s about finding what works best for you and sticking to your plan.
- Submit monthly payments on time and consider increasing them as income allows
- Stop creating more unnecessary debt
- Pick a debt, and go all-in
- Ask your creditor for a lower interest rate
- Offer a settlement with creditors
- Look into debt resolution strategies (Debt Avalanche, Debt Snowball, Debt Fireball, Personal Loans, etc.)