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Check Your Financial Literacy: 10 Questions to ask yourself

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Financial Literacy

Financial Literacy: Due to ignorance of the financial economy and money, people are often unable to secure a decent life even with a good salary. In addition, other people often take advantage of our financial illiteracy, which leads to sad consequences. It is for these two reasons that it is worth studying the basics of financial literacy.

The ability to earn a lot does not mean a comfortable life. If a person earns money only with the help of certain skills, then it is not enough. The ability to manage earned money requires completely new skills and knowledge, and this is what can lead you to financial independence.

We are not taught how to manage our money either at school or at university, this is a big omission because we are faced with financial issues several times a day and sometimes we need such help as auto repair loans or rent loans, but we don’t know how to use this financial help correctly.

Moreover, if you ask any person what, in his understanding, is a financially wealthy person, he will most likely answer: “the one who has a house and a car.”

The following information will be very useful if you decide to change your life and manage your money wisely.

Ten questions to ask yourself to check your financial literacy:

#1 Does My Budget Equal Salary?

In fact, the budget is a more general concept.

A personal budget consists of income and expenses for a certain period of time. Income includes basic salary, additional earnings, cash gifts, bonuses, money from renting an apartment, interest on a bank deposit, stock dividends, bond coupons, etc. In other words, any financial income.

Expenses include food, utilities, transportation, loan payments, clothes, entertainment, etc.

#2 What to Do If Expenses Exceed Income?

If expenses prevail over income and you have to borrow money before payday, your budget is called a deficit. In this case, it is better to take a fresh look at your spending.

It’s helpful to write down your expenses for the month, and then divide your expenses into two categories:

  • Necessary is something that cannot be abandoned. For example, utility bills.
  • Desires are things you can live without. For example, ordering a pizza.

Also, you need to make expenses from the second category less. As soon as income begins to exceed expenses, you can begin to save.

#3 What Is a Financial Airbag?

This is the amount that can help you in a difficult situation. For example, if your fridge is broken or you lost your job. It is recommended to have at least 3 monthly incomes “in the stash”.

The easiest way to form an airbag is to immediately set aside at least 10% of all incoming income. The main thing is not to forget and do it systematically.

But for a vacation, a child’s school fees, or a gift, it is better to save separately. The airbag is only needed in the event of an emergency.

#4 Where Is the Best Place to Keep Savings?

This money can be kept at home, deposited in a bank, kept in a brokerage account. The main rule is that your finances can be easily and quickly removed if necessary.

The perfect option is a bank deposit with the possibility of partial withdrawal and early closure. Interest will be charged on the money, which will allow you to receive an amount more than when stored on a bedside table. It is even better if it is a deposit with capitalization.

#5 In What Cases Can I Take a Loan?

Any sane person will say that it is better not to take loans at all. But often this is the only way to maintain or improve the standard of living. For example, when there was a replenishment in the family and the four of them in a two-room flat became crowded. The family does not have money for a more spacious apartment, the only option is a mortgage.

An apartment, a house, or a land plot can be classified as an asset. This is something that a person can sell if something happens, and it, most likely, will not lose value. You can take loans for these purposes in the absence of other options.

#6 For What Purposes You Shouldn’t Take a Loan?

Loans for liabilities. Liabilities include a vacation, a wedding, a new smartphone, etc. It is better to refrain from loans for these purposes.

The vacation ends quickly, but the obligations will remain. Interest rates will hurt your family budget for several months. This does not mean that a vacation or a wedding celebration should be abandoned. It is just recommended to save for these purposes in advance.

#7 What Is a Credit History?

This is information about how many loans a person has and how conscientiously he returns the money. Many banks, have one credit history.

A person who has been late on payments will have a lower credit score. A person who has never taken loans in his life will not be able to boast of good credit history. Banks have not worked with such a client and do not know what to expect from him, therefore they include certain risks in their profile.

#8 Why Do You Need to Check Your Credit History?

Even if you do not plan to take a loan, it is recommended to check your credit history at least once a year, and preferably more often. The fact is that other people’s debts can be recorded on an unsuspecting person. There can be many reasons for this, for example:

  • the actions of fraudsters who issued a loan for someone else’s passport through a friend at the bank;
  • no luck with the namesake who does not pay the bills. By mistake, it can be confused with you.

If you suddenly find discrepancies in your credit history, immediately contact the bank. If there is no feedback, then – to law enforcement agencies.

#9 What to Do If You Have a Bad Credit History?

You cannot remove anything from your credit history. But if you want to continue lending, it can be improved. Take very small loans and pay them off very carefully. Get a credit card or buy household appliances on credit.

So in a couple of years, you will create a good history of relationships with creditors. Do not forget to pay bills for housing and communal services on time. Most likely, after such “improving procedures,” you will again be considered a reliable client.

#10 What Types of Investments Are There and How Much Should I Invest?

What is the difference between shares, bonds, and mutual funds?

  • When you buy a share, you become a shareholder of the company, essentially its co-owner. When you buy a bond, you turn into a creditor – you lend money to a company or the state, expecting to receive a fixed profit later. The amount of payments is usually known at the time of purchase of bonds, so they are considered a less risky investment. But their returns are lower than those of stocks. They are similar because when you buy them, you hope for the success of the one who issued the shares or bonds since your profit depends on them.
  • The third way is to invest in a mutual fund. Such a fund is a portfolio of different investments in which you can buy a share. In this case, your income does not depend on the success or failure of one particular company, and specialists deal with investments.
  • Everyone has different financial goals and a different starting situation, so there is no single answer. It is generally advised to save or invest 20% of your annual income. If this is too much for you, start with a small amount. You will practice choosing assets, master the basic tools. And as your income increases, it will be easier for you to invest more money.

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Salman Ahmad is a seasoned writer for CTN News, bringing a wealth of experience and expertise to the platform. With a knack for concise yet impactful storytelling, he crafts articles that captivate readers and provide valuable insights. Ahmad's writing style strikes a balance between casual and professional, making complex topics accessible without compromising depth.

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