There is a need to increase financial knowledge among Americans. According to a research, a lot of Americans do not know what important financial terms mean. Less than half know what a 401(k) is. Not only that, 48% do not know what an interest rate is and bankruptcy. 34% are unsure how the inflation works.
These are only a few of the terms that you need to understand if you want to take advantage of financial opportunities. Not only that, the research revealed that 55% of their respondents feel lost when they are discussing long-term financial plans. If they do not understand it, how can they use it to their advantage?
Your inability to understand your finances is actually a good reason why you cannot improve your financial situation. In fact, the simple ability to save more money can be hindered by your lack of knowledge about your options.
Fortunately for you, there are many ways to increase financial knowledge. And most of your options do not even require you to pay money for the lesson. One thing is for sure, you want to improve what you know about your finances as soon as you can. This will head off any potential for making the wrong choices.
How to become financially literate
To increase financial knowledge is not impossible. But you have to start as early as you can – which is probably now. And if you have kids, you might want to get started on their own financial education. According to reports, only 17 states have required high school students to go through a personal finance class. The rest of the country does not have that requirement. It is not mandatory for the students to learn how to manage their finances.
We all know that this can be dangerous because these students are the same ones that will be enticed to borrow a student loan after a few years. If they do not understand what this entails, it might ruin their financial future. Not only that, we might end up with a whole new level of student loan problems.
While the schools might not be of much help, there are other things that you can do in order to become financially literate. Since some of forced to learn on their own, here are a couple of things that you can do.
There are so many resources available online that will teach you how to manage your finances. There are articles that will help you understand how to use your financial resources to your advantage. Apart from learning the basics and the skills and habits that you need to implement, it is also important to always stay updated. Read the newspaper and even financial magazines. There are many choices like Fortune, Forbes, Money, Wall Street Journal, etc. You want to know what the latest interest rates are. There are also important laws that might influence your financial decisions. Try to improve what you know as often as you can.
Know the different ways to earn
If you do not increase financial knowledge, it can effectively limit your options. This is probably why a lot of people are not aware that there are 4 different ways to earn money. Most people are only aware of three or the fourth is not taken as seriously as it should. The first option is employment. This means you are hired by someone else to help their business. In return, you are given a steady paycheck with additional benefits.
The second option to earn is through self-employment. That means you let businesses use your knowledge and skills from time to time. This is also known as freelancing. The pay is not regular but there is a huge potential to earn a lot if you are hard working.
The third option to earn money is through a business. This is not the same as being self-employed because the potential to grow the business is enormous. However, this will take more money to set up and the possibilities of financially failing are greater too.
The final option to earn is something that most people are not aware of – that is investing. If you know how to do this correctly, it is actually the easiest way to earn. It is a passive way to increase your finances. You invest it in stocks, bond, equity or other assets that appreciate over time.
Try to tap into two or more of these. Having more than one source of income is a great way to secure your future.
Research financial management tools
Another thing that you can do is to research the available financial management tools that you can use. Believe it or not, these are helpful if you want to become financially literate. These tools will help you understand how to manage your finance. By making it easier to understand the concepts, you can implement financial habits with ease.
Thanks to the advancements in technology, there are so many tools that you can download to your mobile device. Some applications can be used to synchronize your accounts so you can monitor every transaction you make. It will be more convenient to keep track of everything and ensure that you are not making a wrong move when it comes to your money.
Go to a financial expert
Learning from an expert is also another effective way to increase financial knowledge. These experts can teach you how to manage your money through various strategies. They will teach you how to create a budget plan that you can follow. These experts are also trained to explain to you how you can make your future more secure through a retirement fund and various investments. You can even hire a debt professional to help come up with an effective strategy to pay off your debts. Do not be afraid to get the help of these people if you think that you really need direction.
Get to know your network and connections
Of course, going to a professional is not always needed. If you have a relative or friend that you know is good at handling their personal finances, you can probably ask them for advice. Take note that these are not only the people who are richer than you. These should be the people who you know can borrow money without having to worry that they cannot pay it off. These are the people who are up-to-date with their saving goals. If you know someone who has an increasing net worth, then you should try to get their opinion so they can help you out.
What is great about this is the fact that you do not have to pay them if they agree to help you. Not only that, they might be in a better position to understand your financial decisions and what type of financial management technique you should use.
These 5 different ways to increase financial knowledge can be used individually or you can combine them. The more you use, the faster you can learn about your money.
Reasons why financial education is a great investment
What is great about being financially literate is the fact that it is a great investment. When you try to improve yourself, that should always be considered as an investment.
There are specific reasons why your financial education is very beneficial and will give you great returns.
It cannot be taken from you
First of all, this is something that cannot be taken from you. Regardless of what happens to the economy, your knowledge of how to manage and use your finances to your advantage will always be with you. Whether you are earning a minimum income or a 6-figure one, it will always give you an advantage.
It boosts your earning potential
Another reason why this is a great investment is the fact that it can help increase your earning potential. Those who are financially successful did not always start with having a lot of money. They are the people who knew how to work with their limited financial resources and multiply it. Most people do not know that increasing your finances is not fully reliant on your earning potential. It depends on how you choose to use your money. And that is where an increase in financial knowledge becomes useful.
It improves your life
Since your earning potential is greater, you have more money to work with as you try to improve your life. You have the finances to invest in something that can help you grow your money. If you want to buy a house, your financial knowledge will help you determine the best way to do it. You will also know how to use credit properly without it blowing up in your face.
It secures your future
If you do not know how to manage your money, you will not feel confident about your future. The lack of confidence will actually keep you from maximizing the potential to have a secure financial future. According to a survey, 9 out of 10 pre-retirees are concerned about their finances when they retire. Without a proper retirement plan, you might end up lacking when you finally retire. You need to know how to make your finances more secure so you can face a happier time during retirement. After working so hard all your life, you deserve to do so.
It helps you have financial peace of mind
Finally, if you increase financial knowledge, you will have peace of mind. When you know the ins and outs of your finances, you are in full control of it. This control is what lessens any uncertainties that usually cause people stress. Since you know your money, you can face decisions with confidence. This confidence will fuel your financial peace of mind.