Financial literacy is the level of knowledge in finance, personal savings, and how to manage them. In this article we will tell about the basics of financial literacy, which will help you to become financially independent and manage your money.
Freelancers are especially important to be financially literate. Unlike office colleagues, a freelancer does not have the same social protection and should worry about financial health.
Fundamentals of Financial Literacy for Beginners
There are five rules, the implementation of which will allow you to achieve financial independence:
- Always spend less than you earn.
- Try to buy what rises in price.
- Try not to buy what is cheaper.
- First satisfy basic needs.
- Consider not only the cost of things, but also the cost of its maintenance.
For example, from these rules it follows that first of all it is necessary to solve the problem with housing. Without a property of your own, it is difficult to start a family, survive in old age, etc. Buy the same apartment or house is extremely difficult because of high prices, so you need to acquire a living space first .
You need to buy housing, which will be more expensive in the future. To make repairs – one that will help you realize an apartment as quickly and costly as possible. Therefore, you should not do design repairs, if you are not going to live in this apartment for a long time – when selling design repairs, it will not pay off and may even make it difficult to realize the apartment.
On the contrary, spending money to buy an expensive car or travel is needed last of all when basic problems (housing, good education, health) are solved. In the case of a car, you need to look at the cost of operation, and not just the price of the car. You can “squeeze” yourself and buy an expensive car – and splurge on its maintenance (CTP, CASCO, road tax, expensive spare parts and service, accessories, etc.).
How to start to solve financial problems?
In addition to the basic rules, there are additional rules and recommendations that will help you become a financially literate person and avoid common mistakes. Below is information that will allow you to begin to effectively manage your personal funds. For convenience, we have made several blocks for each topic.
Should I take loans?
Credit can be taken in three cases:
- For housing.
- On the means of production.
- For treatment.
Credit cannot be taken on a car, entertainment, equipment (if it is not needed for work), clothes, etc. Credit cards should be used very carefully or not at all. A new loan can be taken only after the previous payment . Combine two, three or more loans can not.
Apartment and car cost
The maximum cost of the car should be the amount of income for 12 months. If you earn 40 thousand rubles. per month, the maximum cost of the car will be 480 thousand rubles. Such a car will be comfortable in content and will not become a financial burden. All that is more expensive, you buy beyond their means.
The maximum cost of housing is family income for 4 years. For example, if you and your other half receive 40 thousand rubles each, you will receive a total income of 80 thousand rubles. per month. Revenue for 4 years will be at the level of 3840 thousand rubles. For this money you can buy 3-4 room apartment in the region. In Moscow for the purchase of housing, you must have at least 150-200 thousand rubles. per month of family income.
Any person needs to have reserves that can be spent in case of force majeure.
- The minimum amount of reserves – income for 6 months.
- Optimal – income for 1 year.
This amount of reserves will allow you to comfortably survive temporary difficulties or change profession if necessary.
If you plan to have a child, the size of the reserves must be increased. You will not be able to fully work for some time, while your expenses may grow significantly due to the addition to the family.
Typical financial mistakes
Fundamentals of financial literacy will help avoid common mistakes that people make. You will not suffer from excessive loans and think about how to repay debts. Below, we have compiled popular mistakes that people with personal finances make:
I spend everything!
You spend everything you earn. Reserves are not formed. The solution of housing problems occurs with the involvement of the maximum loan, which increases the cost of interest and reduces the standard of living.
I want to buy it!
You often buy on emotions and then do not use purchased things. Many purchases are made with loans, including consumer with the highest percentage. You work not for yourself, but for banks.
I want the best, and the other is not necessary
You basically want to buy a foreign car, without considering the purchase of a domestic car. You need a 3-room apartment right away, but a 1-room apartment does not suit you. You always want to buy what is currently not available, and do not buy what you can really afford. Further events can go in two ways:
- You buy what you want, but on credit, and this credit ruins you.
- You put off purchases for later, and as a result you live worse than you could (you don’t buy your own, albeit small, apartment and live with your parents).
I will not live to retire
You do not form reserves, because you think that you will not live far from retirement or retirement. The problem leads to the fact that a person moves to an extremely low standard of living in old age.
How to improve financial literacy?
- Analyze your income and expenses. Check what expenses you can refuse and accordingly how much to save. It is necessary to optimize all expenses, including small ones.
- Use special programs for fixing income and expenses. For example, a very convenient and functional program “ Home Accounting ” helps to conveniently analyze all income and expenses.
- Follow the rules from the article described in the block on basic financial literacy for beginners.
- Save money and learn to invest. In addition to bank deposits, you can invest in bonds, real estate, your business.
- Carefully use loans. Try to quickly repay debts and live within your means.
Summary: Why do we need financial literacy?
Knowledge of finances and ability to manage personal funds will allow you to accumulate wealth and gradually increase your financial capabilities. You do not need to take large loans to buy the right things. You will be easier to solve problems such as buying a car and real estate. You will become calmer and more confident in life, will worry less about tomorrow.
Improving financial literacy is an ongoing process. Therefore, read useful books, explore the world of finance, use different opportunities to increase personal funds.