When it comes to knowing about finance a lot of people tend to shy away from learning the basics, you shouldn’t be one of them. So what does it mean to be financially literate in today’s day in age? Being financially literate doesn’t necessarily mean that you are fluent in everything finance – it merely means that you have some basic knowledge of commonly used terms and concepts that you will come across in your daily practical life. Being financially literate entails knowing some concepts such as interest rates, debt management, basic investing, and about fees and service charges related to financial products.
Furthermore, to know about these things you don’t need to be an MBA in finance from IBA or LUMS – it just means that you are aware of the terminology used when dealing in basic financial products like bank accounts, credit cards, loans, mutual funds, and insurance policies. Furthermore, part of being financially literate means being aware of the benefits of various financial products, what they are meant for and how you should be using them. Many people end up spending unnecessary money on buying financial products and services that they do not need. What’s worse is that they end up with results different to what they had anticipated simply because they were misinformed with respect to the purpose or associated costs of a particular financial product or service.
Benefits of being financially literate
Being financially aware improves your chances of making more informed and well thought out financial plans for your future. If you are someone who is financially unaware, you run the risk of making ill-informed financial decisions that can land you in a lot more trouble than you think.
For example not paying your credit card bills on time will cost you late payment fees and additional interest payments – not to mention jeopardize your financial reputation, thus limiting your ability to borrow in the future.
Additionally, if you are someone who is financially unaware it can cost you the opportunity to accumulate and build wealth for your future needs. Let’s be honest, if you do not save for the future or your elder years you will face many hardships financially. You should be on the lookout for products and services that help achieve financial goals. Each financial product has its own use. For example, if you want to live a relatively financially relaxed retirement you need to know which financial product can help you achieve that goal. Voluntary pension schemes offered by investment companies in Pakistan help you plan just for retirement.
Everyone has goals such as buying a car or house, taking a vacation, saving for retirement, or a child’s education/wedding expense. In order to achieve these goals you need financial actions such as borrowing, saving, investing, insuring. The first step to knowing what you need is learning about these services.
There are many resources on the internet that can help you learn and find the right services and products that you need. You can visit comparison sites that help you find products such as credit cards, loans, insurance and more to learn about the services available for your situation.
Building a financial plan
For example, if you want to plan for a small vacation coming up in the next 6 months what do you need to do? As a first step, you will need to put together a budget that helps you visualize how much money you will need for flights, hotel, spending money and other things such as travel insurance. Once you have an idea, your next step is figuring out how much you need to put aside on a monthly basis to pay for all the upcoming expenses and to determine if the time horizon you have targeted is realistic or not.
Once you have the plan you need to start putting it into action. Do you contribute the monthly money in a bank account, money market mutual fund, or some other financial product? To take advantage of better pricing on hotels and airfare do you make the booking well in advance by putting it on your credit card and then slowly paying it off? Or do you pay in cash closer to the dates you are traveling on? How much more would this cost you if you did this, or how much would it save you? You need to answer all these questions in order to make your vacation happen.
All small or large events in life need a financial plan
The prerequisite towards financial planning is being financially literate. You can start this initiative today by researching about a financial product you may need and the options available to you. Once you have identified the financial product you need you can start learning about the way that that the product works. For instance, each financial service has its own financial charges, fees, and costs. For example, such products such as savings account, loan, mutual fund, car insurance policy, life insurance policy, or travel insurance policy all have their own respective charges and terminology.
Take small steps to learn the common terms used in each product that you are going to subscribe to. Initially, you should focus on what the fees and rates are, why they are charged, the pro’s and con’s of a particular financial product and lastly the alternatives to the product you are considering.
Start planning your financial literacy today!
Don’t waste any more time and start your journey towards financial literacy. As demonstrated above it really isn’t that complicated. You can accomplish a lot in small steps. Start with yours today.