Financial literacy is your level of knowledge in the financial sphere, personal savings and ways of managing money. Here we explain about the pillars of financial literacy, which will help you competently manage money and become financially independent.
It is important for every person to be financially literate, especially for elderly people, as well as for individuals who are just beginning their journey in this field. A lot of people do not have social protection and should themselves worry about financial well-being.
Fundamentals of financial literacy for beginners
The five main rules, in the implementation of which you can achieve financial independence:
Spend less than you can earn.
Buy what is more expensive
Try not to buy what is losing value.
Meet the basic needs.
Pay attention not only to the price of the purchase, but also to the maintenance – the provision associated with the costs.
From these rules there is a conclusion that first of all it is necessary to solve problems with housing. Without a roof over your head it’s hard to get a family and survive in old age. Buy a house or apartment is extremely difficult because of the high price, so think about it is worth first.
Housing needs to buy something that will be promising for sale in the future or will rise in price. Arrange it so that you can comfortably spend time there. Also, do not spend all your efforts on designer repairs, if you are not going to live in this apartment for a long time. Think about simplicity and refined taste – this will allow you to sell an apartment at a price and price.
Spend money to buy an expensive car or travel last, when the basic problems are solved (housing, good education, health). The car must be chosen from the cost of maintenance and the price of the car. You may be able to “squeeze out” everything “to the last drop” and purchase an expensive car, but do not forget about the expenses for maintenance (Insurance payments, Road tax, Spare parts and repairs, Maintenance, Accessories, Fuel, etc.).
Solving financial problems – where to start?
In addition to the main rules, there are additional rules and recommendations that will help you to avoid typical mistakes and become financially literate person. Next is the information that will help you to start to effectively manage personal funds. We made several blocks for each topic for your convenience.
Is it worth borrowing?
You can take a loan, but in several cases:
On means for production.
To treat your health.
The loan is not recommended for taking on a car, entertainment, appliances, clothes and accessories. It is recommended to use credit cards very carefully or not. A loan should be taken only after the payment of the previous one. It is strongly recommended not to combine several loans.
Cost of an apartment and car
The maximum cost of your car should not be the size of your income for more than 12 months. Suppose you earn 50 thousand rubles a month – the orientation value of your car should cost about 600 thousand rubles. Such a car will be a comfortable transport standard in terms of content and will not become a burden to your budget. Remember, all that costs more – you buy beyond your means.
The maximum cost of housing is the aggregate family income for five to six years. Suppose you and your spouse have a mind of 50 thousand rubles. Your total income per month is 100 thousand rubles. The income for five years will be equal to 6,000 thousand rubles. For this amount you can buy a nice apartment in the region. In the capital for the purchase of housing it is necessary to have at least 200-250 thousand rubles per month of cumulative income.
Each person needs to have a reserve, which can be spent in case of unprofitable situations.
Average income of reserves – income for 6 months
Optimum reserve – income for 1 year
This pillow off will allow you to comfortably survive the difficulties or change the profession if necessary.
If you decide to have children, the amount of reserves should be increased. It is very difficult to fully work and engage in the upbringing and care of the child, and you should also take into account that your expenses in connection with the replenishment will grow significantly.
Common financial errors
Fundamentals of financial literacy will help to avoid mistakes that many make. You do not have to suffer from unbearable loans and think about how to repay debts. Next, we collected the most popular mistakes made by people with personal finances:
I spend everything!
There is no need to spend all that you earn. This does not form reserves. The solution of housing problems occurs with the attraction of suburban loans, which entails an increase in spending on interest and living standards. This, in turn, leads to a state of stress and achievement of work capacity.
I want – I will buy!
Frequent purchases on emotions and then disappointment from the perfect purchase. In some cases – the consumer with the highest percentage. The bulk of the funds paid is used to repay interest – loans you borrowed. I want the best, but you do not need another. You basically want to buy an expensive foreign car without planning a purchase of a domestic car. You need a 3-piece, not a one-piece. Your desire to buy something that for you at the moment is beyond your means and do not buy what you can afford at the moment. The further development of events can unfold in two directions: you buy what you have conceived, but on credit, and this credit you are ruining. You postpone your purchase for a while, and as a result live in worse conditions than they could have imagined (do not buy housing, even if it’s not big, but live with your parents). Before you do not survive, you do not care about reserves, but you think that before pensions away or you still will not live. The problem is that such a person moves to an extremely low standard of living in old age. How to increase financial literacy? 1. Analyze the costs and incomes. Check what costs you can get rid of or refuse and, accordingly, how to save money. Optimize costs, including not essential. 2. Use special programs to fix the spent funds. 3. Follow the rules from this article, described in the blog about the basics of financial literacy4. Accumulate money and invest it in education. Think about opening your own small business. Think about the possibility of providing any services for people on a commercial basis. 5. Accurately use credits. Debts return quickly and live within your means. Summary: Why you need financial literacy Knowledge and ability to manage financial resources can accumulate and multiply your financial capabilities. You will not have to take loans and buy unnecessary things. It will be easier for you to make decisions about buying a car or real estate. You will become calmer and assure, you will be less worried about tomorrow. Increasing financial literacy is an ongoing process. Read useful books, study finance and investment, use different opportunities to increase funds.