Financial literacy has become a buzzword and is often used in discussing finance. But what exactly does it mean? And how can someone develop their money management skills easily?
Financial Literacy: What is it?
Financial literacy simply means knowing how to manage your money wisely. Merely possessing money is not enough. You should be able to distinguish between ‘wants’ versus ‘needs’. And also make informed decisions around bills payments, savings, investments, loans, insurance and retirement plans.
Financial literacy is a lifelong journey of learning. As you get better at managing your finances, the greater your independence and security over your financial life.
So without further ado, here are 5 ways you can improve your financial literacy using financial services!
1. Print out your financial statements
If you’re looking to become financially literate, the first thing to do is to become familiar with your spending habits. Use payment apps like NowNow to see your bank statement and go through it. Closely look at how much you are spending monthly and what you’re spending it on. Are you spending so much on data or Airtime? Or is it eating out? Once you understand how much you’re currently spending, then you can begin to cut down on unnecessary expenses.
Next is creating a budget. Budgeting is important when it comes to being financially literate. Whether you are a gig worker or you just graduated from university, having a budget helps you adopt a disciplined habit of your spending and savings. You can make provisions for both needs and wants using the 50/30/20 rule-50 percent of your income for your needs,30 percent for wants and 20 percent for savings. If your expenses are more than your income, you will need to make necessary adjustments, find ways to increase your income, or do both.
3. Save and earn interest
Ideally, for every money you get, pay yourself first. Set aside a portion of your income for savings no matter how small. The amount you put away also depends on your long-term financial goals, but the general rule is 20% of your income. Save on platforms that give high interest rates.
Save in two categories:
- Saving for the future: For long term projects like building a house or buying a car
- Saving to spend: These are funds for emergencies like medical expenses, etc.
Banks and Fintech firms can offer you loans in minutes without any paperwork. Just make sure to pay back the loan on time. It improves your credit score for you to obtain a higher loan next time.
The best way to be financially independent is to live debt-free. Set a spending limit on your budget and stay within it.
One day you’re going to get old and unable to work. That’s what pension is for. Start an early retirement plan. Though pension is often common with salaried workers, self-employed citizens can also save for theirs. The Nigerian Pension Reform Act (PRA) 2014 scheme allows it.
Unexpected accidents happen. You must protect yourself, your properties and your loved ones by taking out insurance on unforeseen circumstances. An insurance policy allows you to receive financial compensation or reimbursement from an insurance company against losses. You can insure your house, vehicles, business, health and life.