It is not a secret that making smart financial decisions requires special knowledge and skills. People who have them are able to effectively manage their finances and understand the basics of personal budgeting, investing, taxation, lending, and other financial aspects, which significantly increases their standard of living. We are going to explain how a student can become financially literate and why it is important to start keeping track of income and expenses.
Financial literacy is the skills, knowledge, and abilities necessary for the effective management of personal funds. It is generally accepted that increasing the level of financial literacy in society actually leads to strengthening economic stability. Also, the ability to handle money improves the quality of life of a particular person.
Students should be aware of all their expenses and add them to their plans. This includes food, housing, transportation, personal needs, and paying for various types of services, such as help from writing websites, for example. As for the latter, you can hire paper writing service like AdvancedWriters for a reasonable price, which may well fit into your financial plan.
Basic financial knowledge
Budgeting — that is, planning a budget is the ability to monitor all income and expenses, as well as the habit of relying on it when making large purchases, paying utility bills, and making household expenses.
- Savings basics — understanding the importance of savings and creating a financial safety net.
- Debt management — understanding the pros and cons of loans and credits, awareness of the differences between various types of loans and lending conditions, and monitoring your own credit history.
- Efficient use of credit cards — understanding the principles of using credit cards without debt.
- Tax literacy — knowledge of the basics of income and investment taxation.
Investments and risks
- Investment basics — knowledge of different types of investments (stocks, bonds, real estate) and principles of portfolio diversification, i.e., the ability to use different methods of investing money.
- Understanding risks and returns — assessing the risks and expected returns on investments.
Personal financial goals
- Goal definition — developing a hierarchy of financial goals and plans for achieving them.
- Everyday financial decisions — introducing discipline into financial management, the ability to distinguish between what is necessary and what is desired.
Practical ways to improve financial literacy
The essence of a student’s financial literacy is the ability to effectively manage what they have, be happy with their money, and spend it usefully and with pleasure for themselves.
In fact, there are not so many rules. Ideally, you need to get acquainted with the theory at least and practice: immediately start looking for extra expenses, saving a little, open an additional account, and save for a goal. Now, that will be practice.
Gradual development of financial literacy helps you eventually learn how to control the budget, improve your credit history, and earn more: get new knowledge to invest money and use securities.
Subscribe to educational resources
Texts on thematic resources are often written in too dry financial language, and for an ordinary person – if they just want to start saving – the terminology may seem very complicated. Pay attention to some simpler options.
Read specialized literature
Here is a similar situation. There is a lot of literature, and the necessary knowledge is not difficult to find. However, some books are too complicated or too directive: “Save exactly 10 percent or do not buy extra coffee under any circumstances.” Not every book is suitable for direct instruction, and it makes sense to filter the information received through the prism of your own life, taking personal characteristics and capabilities into account.
Plan a budget
Get an Excel spreadsheet or a notebook, or use special applications. At first, just write down all your expenses and segment them. Fixed expenses are rent, mortgage, loans, and utilities; variable expenses are everything else.
Plan your budget so that you can put aside a certain amount of money. Be honest and realistic. You need to subtract savings and fixed expenses from your income. You will have to include all variable expenses in the difference.
Follow the 50-30-20 rule. Under this rule, 50% of the money should go to necessary fixed expenses, 30% to optional variables, and 20% to savings and investments.
Be careful with loans
Take loans only in case of emergency or for really necessary things that will be a good investment. Such things can be buying a house or means for work and study, as well as paying for treatment. Do not combine several loans; take a new one only after you have paid off the previous one.
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