A Beginner's Guide to Financial Literacy

Here’s a simple exercise: close your eyes and imagine something nice. It could be a nice pair of sneakers or a lovely dress you’ve been eyeing or chilling on a yacht or an island sipping something refreshing. Or it could be something less fun like buying a car or renting a more convenient apartment or even paying for a professional course that will boost your career… The list is endless. But hold this image in your mind for a moment and relish it.

What’s the point, you ask?

It’s simple; most things you can think of will cost you either of two things: time or money. And, very likely, that image you just conjured in your mind will cost you money. At the core of most human needs and wants is money. And while our needs may be few, our wants tend to rack up, tugging on the straps of our wallets and purses to be met.

And to ensure we don’t run into insurmountable debts or become overwhelmed with trying to manage our finances, health and every other aspect of our lives, financial literacy is important.

Simply put, financial literacy involves understanding and applying financial skills to become financially stable and attain financial freedom. Ignore the big words – what it means to be financially literate is that you are aware of the importance of money, and you don’t approach it with a “whatever goes” attitude.

Financial literacy is knowing how to manage your money, plan your finances, and take care of essentials while still ensuring that your future self is not broke.

When we talk about financial literacy, it usually involves your personal finance and how you go about budgeting, saving and investing. It is also about knowing how to manage debts and the risks you take in your endeavours, how to protect yourself, and planning for your future (for example, having a solid retirement plan).

Why is financial literacy important?

As financial literacy encompasses various aspects that actively affect our day-to-day life as well as our future well-being, becoming financially literate is an important step to being in control of your life. It gives you the confidence that you know how to use money smartly to meet your needs.

While it is easy to think that the problem is often the lack of money, that is rarely the case. Financial literacy is not just for when you have a lot of money, but it is about knowing how to plan your finances regardless of your income. This is why it is important to learn it early and keep practising and using the knowledge you gain.

At Yellow Card, we are dedicated to not just ensuring that everyone learns the basics of cryptocurrency and blockchain technology, understand crypto trading and have easy access to cryptocurrency with their local currency; we also want to ensure that you become financially literate and make smart financial decisions.

Mainly, here are the ways that financial literacy can improve your life:

This may sound like something you would expect rich people alone to bother about, but it is meant for everyone. A financial plan is a document that gives an overview of your earnings and spendings, your assets and liabilities, short-term and long-term personal finance goals, debts and investments. It gives you a rounded view of your current financial situation at any point.

Having a financial plan is the first step to gaining financial freedom because it means you’re now paying attention to everything that involves your financial position.

With a financial plan in place, it becomes easy to see where your money is coming from and going to. This means you can now become the controller of money and allocate it to the right places. A budget helps you determine how to break down your earnings to meet your needs.

There are different budgeting strategies because everyone has different needs and hence, different approaches to using money. The different strategies can be adapted to suit your style and achieve your financial goals.

To better understand budgeting, we have written about:

Saving is setting money aside to meet a future goal. This could be buying an item or paying your rent. Usually, people save to meet a particular goal, but saving can also be to prepare for unforeseen expenses or emergencies.

While investing also involves setting money aside, the goal is to ensure that the money is used to generate more money. For instance, you could buy crypto assets, stocks, or put money in real estate because you believe that your money will appreciate in those endeavours so that when you get it back, it would be worth much more.

Even though there is usually interest earned on your savings, the main reason for saving is not always for this. And that is one main way it differs from investments; you always expect more money from an investment. And because of this, it can be a quite risky endeavour – being financially literate will expose you to investment options that suit you and see that you’re properly aware of the risk and learn to manage it.

Here are savings and investment guides to help you on your journey to financial freedom:

Sometimes, we need to meet needs and do not have the money, and we end up taking loans. While a loan gives you the freedom to meet needs with money you do not have, it is debt. It means you have spent money you do not have. To attain financial independence, it is important to pay off loans so that you can do more with your money. You should also know when to take a loan and what to consider when you have loan options.

You may think, “doesn’t insurance cost me money?” and you will be right to think so. But the idea behind insurance is that you’re taking a risk to ensure that if the need ever arises, you’ll have enough money to cover expenses for damage or a loss. There are different types of insurance and we can group them into life insurance and non-life insurance. Non-life insurance could be car insurance, home insurance or health insurance.

To understand more about insurance, you may find this useful:

The first step to becoming financially literate is knowing, that is, understanding what matters. The second part is implementing; it is not just having the knowledge but continuously acting on it till it becomes a part of you. That is how to attain financial independence. And we are here to help you on your journey.