Learning these five essential components of financial literacy can help families through times of scarcity and prepare wage earners for better times in the future.
Earn
You can’t do much with money if you don’t have any. Earning is the first principle of financial literacy, whether it’s income from a job or income from a combination of federal and state benefits designed to keep families afloat.
Income is precious. Financially literate people know how much is coming in every week (or month). Predicting monthly income is a necessary first step to a financially literate life.
Budget
Determining how much is coming in makes it possible to budget for how much will go out. Calculating how much necessities, like housing, food, clothing, and transportation, cost each month will reveal how much you must budget for.
If income won’t cover expenses, something has to go. Look to aid agencies for help finding food assistance, more affordable housing, and transportation discounts for low-income people. Children are eligible for various assistance programs, so ensure they receive all the help they qualify for.
Save
The next tier of financial literacy is saving. Those fortunate enough to have any funds left over after addressing basic needs should start to save money, using the “pay yourself first” strategy. Before allotting funds for spending, set aside a defined amount each month for savings.
Keep in mind that there are several types of savings: savings for retirement, savings for emergencies, and savings for spending on specific desires, like a new outfit or a vacation. Participating in employer retirement funds and matching programs makes financial sense.
An unspoken but essential component of financial literacy is the idea that money’s main job is to make more money. Staying informed about interest rates and making sure that savings earn at least some interest is a key aspect of any financial strategy. When six months of living expenses are safely in the bank, financially literate savers can begin to learn the basics of investing to ensure their money continues to add value.
Borrow
Sometimes a loan or credit account is necessary. Borrowing to purchase a car or buy a house and consistently paying on time will help build a positive credit history. However, beware of high interest rates and credit card myths that could derail carefully laid financial plans.
Protect
Protect your home and property with insurance. Employers often offer life insurance as a part of a complete benefits plan. Secure savings and retirement accounts with strong passwords and vigilant monitoring.
Non-profit organizations devoted to educating people about financial matters may offer free classes to further understand financial literacy. They’re worth looking at to get started on a positive financial future.
