My parents raised me to acknowledge the importance of saving money and spending it wisely. The cash I was given during Christmas, birthdays, or the “tooth fairy” was always stowed in a piggy bank or small box in one of my drawers. Before spending any of it, I’d think long and hard about what I’d use it for. Upon beginning work at 18, I’d make sure to save up as much money as I could from the tips I made while waitressing. Although I knew the importance of saving, making my own money made it easy to spend a lot of it too. Eventually, new responsibilities forced me to get a second job.
Ten years and a few jobs later, my savings account doesn’t surpass a certain limit. No matter how much money I try to save up, life happens; and that means unexpected expenses sometimes occur. Eventually, I accepted that I would need to work harder and smarter to secure a decent income. However, it wasn’t until a few months ago that a conversation with a dear friend led to her recommending that I read “Rich Dad, Poor Dad”, a book about how financial literacy is the smartest way to reap personal economic benefits. Throughout the book, author Robert T. Kiyosaki talks about the economic advice he got from his father, a humble, middle-class man, and the true financial lessons he received from his best friend’s father, a very wealthy Hawaiian businessman.
Upon reading Kiyosakis’ book, I quickly understood that my ignorance about finances was the real problem. Sure, I handled money; but, clearly, not appropriately. Financial literacy means having the knowledge to make financially responsible decisions. This includes understanding our expenses, finding smart solutions for avoiding and paying off debt, understanding the benefits and disadvantages of using different financial instruments, and establishing other forms of income.
Understanding our expenses
Knowing how much money we make versus how much of it we spend is crucial for maintaining healthy finances. While some people think getting a good paycheck means they can splurge more of it, not keeping track of your expenses can be detrimental. Unexpected situations such as job loss, family problems, or personal difficulties can drastically affect our finances. And, if we’re not economically prepared, we may need to use other financial tools like loans or credits. While these instruments can help us manage certain situations, overusing them can affect us in the long run. That’s why it’s important to have savings, create a budget, and avoid overspending on unnecessary things. Treating yourself is fine; but doing it consistently isn’t a smart financial strategy.
Credit and debt management
Most of us have relied on credit and loans to get by on personal matters. Although these instruments exist for our advantage, not knowing how to use them wisely can be an economic disadvantage. When searching for financial tools, not only is it important to seek low interest rates; it’s also important to pay off balances in time to avoid interest rates at all. It’s also crucial to learn how to use credit wisely. While it’s tempting to splurge on things that we can technically pay off later, amounting credit usage and maxed out credit cards will not help our finances or our peace of mind in the long run. Furthermore, if you’re one of the many already facing serious debt, consider looking into credit counseling or devise a well-structured plan to get out of debt.
Build your assets
One of the most important lessons Kiyosaki got from his “rich dad” was that the wealthy don’t work for money. Instead, they have money to work for them. But this doesn’t mean that only the rich can do this. The poor and middle class can also have money work for them by generating assets throughout their lifetimes. Assets are resources that can generate cash flow in the long run. So it’s not about getting rich quickly or getting rich at all; it’s actually about ensuring financial security without falling into the pattern of working, paying bills, sleeping, and repeating the cycle. Nowadays, a paycheck is barely enough to make ends meet. So, before considering getting that second job, try exploring different and legal options to generate income.
Understanding how to manage our finances appropriately allows for more financial freedom and security. Additionally, with social security about to collapse, financial literacy can help us secure our own money for retirement. Sadly, these lessons are rarely taught in schools, and many of us struggle financially because of it. However, it’s never too late to learn and search for a financial plan that can benefit each of us individually.
If you’d like to learn more about finances but don’t know where to start, a quick online search could lead you to different finance websites such as Investopedia. Similarly, some government websites, such as the United States Department of Treasury, offer financial courses for people of different ages. You could also search for in person or online courses at a local school or college.