We all hear and know about different types of Intelligence's like Artificial intelligence or Business intelligence or Digital intelligence, but we must have rarely heard about Financial Intelligence. Yes, Financial intelligence or Financial literacy is as important or I would say more important than any other Intelligence because 80% of a person's problem is directly or indirectly related to money.
The main reason I am writing this blog (my first blog) is that I find so many people struggling with Money. You must have heard from our friend or colleagues saying "Its month end I'm Broke". The only reason people struggle with money is the lack of Financial Literacy they have.
In this blog, I will not be writing anything deep or technical about money, but the financial rules to apply to be financially literate and help to improve your financial condition.
So with all your focus try understanding the following,
1. Understanding the difference between an Asset & a Liability:
Major people fail to understand the important difference between an Asset & a Liability and later end up having Liabilities thinking them as an Asset.
Let me put the definition of both of these in simple words,
An Asset: Anything that puts money in your pocket is an asset. For example Your Skills, which earns you money every month in the form of a job.
A Liability: Anything which takes away money from your pocket is a liability. For example your cellphone, which takes money every month from you in terms of Recharges or Bill payments or even EMI for the device.
We fail to understand the difference between Asset and a Liability and often end up buying many liabilities taking them as an asset. We take our car or bike as an asset, but in reality, they are the liabilities that we own as they take money from us in the form of maintenance, fuel, loan interests, etc and also the value of these liabilities decreases the moment you start using.
So now as you know the difference between both of them, list down all the Assets and Liabilities that you have and cut down the unwanted liabilities that you own.
2. Decrease Dept:
Yes, the fastest way to be financially independent is by decreasing the debt you have. Pay off all the loans, your credit card EMI's and any other debt that you owe as soon as possible. The sooner you pay off your debt the better, as you will have more money with you to save and invest.
Let me share with you a personal observation about Credit Cards: I would say "Avoid Them". Yes, avoid them, because they are one of the major reasons people always remain under debt. The offers given by Credit Card and Online Retailers give are very tempting that major people ending up spending on things which they actually would have not bought if they did not have a credit card. Major credit card users end up buying things like the latest gadgets, fashion and other things thinking they will pay them using EMI, which keeps them under debt for certain months and people tend to make this as a habit of using their credit cards which keeps them always under debt. When you use your credit card you are using the money that you don't have and later end up paying heavy interest for that money.
"Choose to earn interest rather than paying interest"
3. Track your Spending:
The Best and Simplest way you cut down your unwanted expenses is by keeping a track of your spending habits. Yes, you need to track even the smallest amount that you spend during your day.
The simplest way to do is by writing down your everyday expenses into a diary or ledger, or you can even use one of the various expense manager applications that are available on the app store.
By tracking your expenses you will know how you spent your money throughout the month or week and cut out all the unnecessary expenses that you must have made in the form of unnecessary shopping, expensive dinners or your habits (Smoking and Drinking).
4. Start Saving:
Quoting "Rich Dad Poor Dad", which says "It's not important how much money you make. Its how much you keep". Yes, the more you keep before you spend will help you reach your financial goals.
The next question everyone have is how to save and how much to save. The more you save the better, I save 40% of my income and use the rest 60% for my monthly expenses. I would recommend to save a minimum of 20% and not less than that of whatever you earn.
The only way to survive your month from the remaining amount is to Budget, Budget and Budget Harder, start cooking at home, cut down all the unwanted expenses and you will see in a few months it will become a habit of saving first and then spending.
“Money Invested is better then the money saved”, because when you invest your money you put your money at work, and when money works it grows. The first question everyone has is when to invest? Start investing when you have cleared all your high-interest debt, Simple!.
The next question is where to invest? There are several options where you can save depending on how much risk you are willing to take, like RD, Stocks, Mutual Funds, Bonds, etc. The only important and key rule everyone needs to follow is “Invest money only in things that you understand”, don’t just start investing by hearing it from someone you know, I know so many people investing in crypto when they don't even know what it means. Read about where you planning to invest, try understanding the risk, returns, the nature of business and all the other aspects related to it.
These are the few basic things that are related to Financial Literacy. I am not any financial expert but have tried expressing my understanding of money and how anyone can improve their financial condition following the above rules. Right from today the first thing you need to do is start tracking or writing down your expenses because when you track is when you understand where you have spent unwanted. Make this a habit and you will see in a few months you will start getting rid of all your unwanted expenses which will automatically improve your financial condition.
So start following the above rules and see the change, I hope it is easy to understand and help you improve your financial condition and what other rules can you add to this list that I may have not mentioned?
If you think this blog post was helpful, do share it with a friend and do tell me how it helped you or it could have been better.