Do you know what is going on with your finances? Do you know how much money you spend on groceries every month? What about monthly savings? Are you still saving up for future purposes, or you hardly even set it aside?
Imagine how much you can save when you understand the basic principles of money and the modern economy.
What is Financially Literate?
Being a financially educated individual means, you understand how money works. You effectively apply financial principles in your life, including fundamental financial skills – personal management, budgeting, and investing.
It doesn’t matter what you do for a living or how much you earned annually. You still need to get your finances right.
On the other hand, people who lack a basic understanding of financial literacy may lead to many pitfalls. They may have unsustainable debt, poor spending decisions, or worst, bankruptcy.
But the good news is, we will help you get an idea of how you can be a financially literate or educated individual to give you access to more opportunities in the secular world.
The Truth Hurts!
Why can’t people directly answer simple questions like, ‘how much money do you spend on recreation?‘ Or ‘have you prioritized setting aside money for monthly expenses?’
We, as humans, tend to avoid the ‘truth’ because it hurts us in any way. The truth may hurt our pride, hurts the way we see ourselves overspending, or even hurts our pocket.
Imagine getting enticed by a commercial ad. It’s not in your budget or finances to purchase a new automatic vacuum cleaner, yet you were to swipe your card and get that from the store. When bills come in, you get cold feet on how much you have spent on unnecessary things.
This feeling is justified. I mean, wouldn’t you just be frustrated to see an undeniably larger portion of your income being wasted on secondary needs, or rather, wants?
It’s better to face your problem than pretending they aren’t there at the end of the day. Do this by analyzing your habits and finding out where it is all going.
How Money Flows in the Current Economy
The principles of money change over time due to the changing economic situation. The way people earn and spend their money before may be different from how people use and spend their money nowadays.
Money Goes to the Rich
Money isn’t about luck, not unless you’re one of the few people who win a lottery or a gambling bet. The thing is, money all goes down with patterns and formulas.
But why do you think the rich people are getting richer, and the less fortunate are left with nothing? Two reasons explain this situation.
Rich people know how to make (more money)
Indeed, most of us might have stable jobs and other sources of income. But why are you still struggling financially?
After initial trial and failure, rich people have figured out how to make money and repeat the same process of success until they reach their first million, second million, and so on.
Isn’t that just worthy to note how 88% of Millionaires are self-made? But you might say, maybe they’re working in the tech industry or a field that generates millions of dollars.
In all honesty, any industry you belong to can potentially make you a millionaire. But it’s not an overnight success. It may take a while for someone to reach a secular success. But once figured out, all they have to do is to repeat the same process and win the money.
Money Attracts People with More Money
As impressive as it sounds, money has a momentum effect. The more money you have, the more money you make. It doesn’t matter if you earn 50 grand a month. If half of that is set aside in taxes or spent in your lifestyle, then you’re not gonna experience growth.
Have you tried saving tons of money in your savings account? For whatever reason that may be, the point is if the more you have in the bank, the more you can actually save because having money builds confidence and discipline.
But remember, whenever you lose momentum, you have to generate it again from nothing.
The Market Decides your Worth
The marketing concept may refer to producing goods or providing services to satisfy the consumers’ needs. But in economics, there is a connecting idea that the market follows, the interplay of supply and demand.
The interplay is effortless. Let’s say you produce a lemonade on the street in the summertime. Since many people get thirsty quickly, they can pass by your stall and buy lemonade for $2. This shows significant demand for your product, allowing you to sell it for a higher cost than usual.
Now, think about this. If you’re planning to continue your lemonade business, how would your business fare in springtime? Your drink may not be as demanding as it is before. In return, you have a lot of supply reserved while the demand lessens. Hence, the price drops.
Can you imagine where this is going?
In order to raise your price, you also need to increase the value of your business, allowing solutions to pass by a particular problem.
Perhaps you can strategize and think of another offer that would totally be a hit in your neighborhood. Don’t stop until you’ve figured out how to reach your product’s maximum amount for the maximum price, as this is the supply and demand balance point.
Likewise, humans can receive a proportional value with the proposing solution they offer to solve a certain problem. The harder the problem is, the higher your income could be.
How Should You Start?
Being financially literate doesn’t have to be complicated. In fact, that would be counterproductive.
Have you heard of the 50/20/30 rule before? The 50% of your income should go directly to the bills, whether that’s food, groceries, rent expenses, electricity, and water bills. Next, 20% of your savings is a fixed number to set aside, while 30% is the amount you can enjoy.
See how this strategy doesn’t deprive you of happiness? However, not everyone can apply this great budgeting rule due to different circumstances and economic conditions. But here are two things that can help.
A) Analyze where your money went for the past three months. Check if they are satisfyingly spending more on necessities than on lifestyle expenses. You can also just plan your expenses for the next three months if you haven’t kept track of your spending before. Categorize them into four fields:
- Needs
- Wants
- Savings
- Investing
B) Change your habits – If you think something needs to change, do it immediately and manage your money better. Decide how much or which percentage should go into the four categories. However, do not neglect emergency funds that are as important as your savings.
The thing is, you don’t have to deprive yourself of the good things in life. After all, isn’t it one of the top reasons why we want to make money in the first place? Enjoy life as we pay our bills that we are satisfyingly consumed.
Overall, it’s worth mentioning how beneficial it is to be a financially literate or educated person. You can now effectively plan where money should go and prioritize needs rather than wants.
