Financial literacy has been generically perceived as a system that allows individuals to earn money and accumulate wealth. For instance, Investopedia defines it as an ability to understand and efficiently employ numerous financial skills, including personal financial management, budgeting, and investing. While this is not entirely wrong, it overlooks crucial aspects of the subject. Financial literacy is not merely an achievement; it is a continuous process of implementing the right strategies for long-term financial security – a journey towards financial freedom. Let’s delve deeper into the nuances of financial literacy and uncover valuable insights that may have eluded you:
A major sign of financial literacy is the ability to recognize that profit is made when you buy, not when you sell. Warren Buffett and his mentor, Benjamin Graham (considered the father of value investing), among other notable financial and investment experts, have championed this principle. An agreement, deal or partnership should make sense economically at the time of purchase not after. This means that before making any purchase or entering into any agreement, you need to peruse all aspects to its logical point and determine from the onset if it will be beneficial to buy. If you are unsure about the outcome of a deal, wait. Get assistance on what you need to look out for before binding yourself.
Now, while this may seem like a common point, it cannot be overstated: Living within your means and increasing your means. According to Thrivent, living within your means entails spending and saving less than or equal to your income. Additionally, it involves preparing for future expenses or emergencies by setting aside savings. There’s often an assumption that you should splurge once you get extra money, but this isn’t advisable. It’s crucial not to increase your spending just because you’ve come into some extra cash. The best approach is to allocate additional spending only when it’s certain that your income will increase accordingly.
Another key aspect of financial literacy is learning to invest intentionally in assets. While the wealthy tend to acquire assets, those who struggle financially often accumulate liabilities. In addition to wealth growth, Grove Gallery emphasized that investments can provide regular income, aid in retirement planning, and enhances overall quality of life. On the path to financial literacy, it’s crucial to invest in items that appreciate in value and enhance your financial position. Purchasing or investing in assets solely for the purpose of showing off or fitting in can be detrimental to your financial well-being.
The advent of technology has transformed the way we deal with money. Fintech innovations, ranging from mobile banking apps to robo-advisors, offer unprecedented convenience and accessibility. Meanwhile, the rise of digital currencies like Bitcoin has sparked debates about the future of money. “The Age of Cryptocurrency” by Paul Vigna and Michael J. Casey provides an insightful exploration of blockchain technology and its implications for finance. By adopting these technological advancements, you can utilize the power of digital tools to streamline your finances and keep up with the ever-evolving financial landscape.
As a necessary skill for managing finances and attaining wealth, financial literacy goes beyond balancing budgets and understanding interest rates. It is important to watch out for some of the mechanisms discussed above and adopt the ones that can help you improve your financial skills. But more importantly, seize every given opportunity to deepen your understanding of financial literacy and pave the way towards a brighter financial future.
Source: Ghana/Starrfm.com.gh/Etornam Kumashie
