Are you living paycheck to paycheck or getting into a debt trap again and again? If yes, you likely lack the basics of financial literacy. Dive into our article to learn how to control money and never let money control you.

Financial literacy, or financial education, has become a kind of trend over the last decade. Everyone claims it's vital to become financially literate, but why? 

Interestingly, even though banking, savings, and investing have become integral parts of our lives, a fairly large percentage of the population doesn't have a solid economic state.

In Switzerland, for example, 4 out of 10 people live paycheck-to-paycheck, while the rest say that they regularly overspend their budget. 

Of course, some financial issues like inflation might be out of our control. But financial literacy can equip us to handle whatever comes our way. 

But what does it actually mean to be financially literate? What are the pillars of this concept? And finally, what are the things that need to be learned in order to make the best out of your income?

In this guide, we'll go over all the essentials of financial literacy and learn everything you need to improve money knowledge and gain fundamental economic skills. Let's go!

What is financial literacy

Financial literacy is a mix of financial and economic knowledge and skills necessary to make wise decisions on earning, spending, and saving.

Indeed, the concept of financial literacy covers lots of aspects. But the most common are fundamentals of investing, personal financial management, budgeting, saving, credit, and debt.

The primary goal of financial literacy is to teach individuals to better understand their money and manage it with maximum efficiency.

For example, a financially literate person knows that if they take a mortgage for $1,000 a month, they cannot spend more without going into debt. 

Someone with even more financial literacy might realize they can spend $500 on new apparel or put this $500 in high-interest assets to generate profit in the long run.

By the way, financial literacy is often the mark that separates wealthy people from everyone else.

Why it is crucial to be financially literate

The most important advantage of financial literacy is financial security. 

With a proper understanding and expertise in money matters, you can protect your financial future and guarantee financial independence. 

Of course, money can't always buy you happiness. But financial freedom gives you a chance to do what you want, where you want, and when you want. 

On top of that, when unexpected crises arise, financial literacy can help you cushion collapses or develop a backup plan for all kinds of scenarios. 

5 pillars of financial literacy

As a complex concept, financial literacy has a wide array of components to study as well as approaches to them. 

The US Financial Literacy and Education Commission, for example, defines five principles of financial literacy. As you go through them, think about ways you can do or change to improve your financial situation.

Earn 

Before starting to manage their money, all financially literate people determine how much they earn. 

Take an adequate look at your earnings and note all spending deducted from your income to cover essential needs like health insurance or a retirement plan. 

Once you've determined your regular net income, you can move on to the next steps, such as fundamentals of investing, spending, or saving.

Save 

Saving is crucial for a healthy financial state, but saving money is hard without specific objectives. Your financial goals may vary depending on your aspirations and abilities.

But financially literate individuals always make savings for emergencies, retirement, big purchases, and paying off personal debts. 

Protect 

Once you've set yourself up with a budget, it's critical to safeguard it. Normally, this implies regularly reviewing your bank accounts and card statements for errors or suspicious activity. 

Spend

A personal budget is just a plan for how you want to spend your money. But being financially literate means you’re sure you get good value for your buys by shopping around and comparing your options. 

When considering purchases, determine whether they are a need or want, and don’t exceed your budget. 

Borrow

Even if you're a good saver, at some point, you may have to borrow money to cover large expenses like college fees or buying a house. 

Remember that borrowing is not in conflict with financial literacy as long as you know how to pay off a debt.

Financially literate woman enjoying their financial freedom

How you can develop financial literacy: 5 steps to take

Unfortunately, most schools don't offer financial literacy classes. So, if you want to become financially literate, you’ll have to do it yourself. 

And even though being financially literate doesn't mean having deep expertise in cycles on financial markets, central banks, or real assets, the more you learn and know, the better off you will be.

Let's go over 5 steps to help you get started!

Know yourself

As a financially literate person aspiring to change or fix your financial condition, you must start with a strong sense of your financial situation. 

The first thing to do is get familiar with your spending habits. In the era of simple payments, most of us don't realize how much is flowing out of our bank accounts. 

Unused subscriptions, unnecessary consumer goods, excessive utility consumption — you may be surprised about areas of your waste!

Once you know your daily expenses, you can assess what needs to be revised. 

Set financial goals

It's always easier to accomplish something when you set a goal in mind! Whether allocating money for your property, college loans, or a new business, you'll be much more inclined to handle your budget better if there is a reason for it.

By the way, even if there are a bunch of things you need and want, financial literacy will allow you to prioritize your goals and take the proper steps to achieve them.

But don't worry too much about sudden expenses. Though making impulse decisions can negatively affect your finances, it's absolutely normal and happens to everyone from time to time.

Scour financial resources, both free and paid

A rich digital ecosystem made it possible to learn financial literacy and management from top to bottom.

Preferably start with free resources, gradually moving toward low-cost options, and then to reputable sources to maximize your financial education.

At Marmot, we work with female financial coaches, such as Corinne Brecher, who are on a mission to help women achieve financial independence.

Consume information in a way that works for you and your lifestyle. Whichever you choose, there are tons of everything out there that can make you financially literate.

Ask for help

Would you ever try to fix your gas stove on your own? Or try to learn Chinese without a teacher? The same applies to money. 

And even though teaching yourself financial literacy is a great thing, you may need some professional assistance.

Find a trusted financial adviser and discuss with your adviser your financial status, goals, and the pathway to get there. Your adviser can provide expert guidance on important or challenging financial decisions. They can also create and execute a plan for you tailored to your short, medium, and long-term financial goals. At Marmot, we care deeply about each of our clients as an individual and aim to help them fulfill their goals. Contact our expert team now if you need help.

If you're not ready for human service quite yet, start with financial technology. You might find Mint good to budget appropriately and control spending, or GoodBudget to track your money matters.

Consult with your employer

Honestly, to become financially literate, you don't need to go far. Start with your workplace to determine whether your company offers free financial counseling or an employee financial wellness program. 

You may have the right to talk to a financial expert as part of your agreement benefits. This can give you an understanding of the aspects you must focus on. Usually, it includes saving, retirement, or tax reduction.

Some more tips for building financial literacy

  1. Opt for the new money philosophy. Being financially literate means also being positive toward your past money mistakes.
  2. Set goals for what you want to learn to become financially literate and create a timetable. 
  3. Start with things you already know and develop your education around them.
  4. Mix various tools, resources, and methods you can learn from. 
  5. Once you become financially literate, apply your knowledge by reducing debt, investing small amounts, or saving for retirement.
  6. Review what you have learned, where you've succeeded, and what needs to be improved. Being financially literate means ongoing control. At least in the beginning.

Final thoughts

Regardless of your schedule, skill level, background, or financial situation, with this tutorial, you’ll always be better prepared for any financial emergency. 

Want to learn more on financial literacy? Great! Follow our Market Report within Marmot Magazine for a detailed breakdown of the latest market movements, so you can make most of your finances. 

Don’t know how to achieve your financial goal? Take our Money-Make-Over-Quiz. It will teach you how to achieve financial independence step-by-step without putting the money you've earned at risk.

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Disclaimer

The content in the blogs is solely for general information and to help potential clients get an idea of how we work. They are not recommendations that should lead to the purchase or sale of assets and are not investment advice. Marmot.Finance cannot judge whether and how the statements made fit your investment objectives and risk profile. If you make investment decisions based on this blog entry, you do so entirely at your own risk and responsibility. Marmot.Finance cannot be held responsible for any losses you may incur as a result of information contained in this blog entry.The products mentioned are not recommendations, but are intended to show how Marmot.Finance works and selects such products. Marmot.Finance is also completely independent and does not earn money in any form from product providers.

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