Financial education: how to improve your relationship with your money?

Financial education helps us save and plan for things like buying a house or traveling. It’s especially important for families who need to manage their money better.

It helps individuals and families understand the basics of saving, budgeting, investing, and credit management, which are all essential for achieving financial goals.

Additionally, financial education can also help people understand the risks and rewards of different investments, but we’ll cover that further down the line.

To take the first step toward your financial health you will need:

– Knowing your current income: Do you have a fixed salary? Do you have extra income? Are there any bonuses you may receive?

– Make a complete overview of all the debts that you need to pay.

– List all the expenses and learn to set some priorities. This is the only way to cut expenses without getting yourself in a tough spot. Don’t forget that bank fees and credit card dues also make the list.

Organizing your finances and investments often means changing your spending habits. But once you do, you’ll have extra money to invest and manage your finances.

7 tips on financial education to put into practice today

1. Spend responsibly

The basis of financial education is improving your relationship with money. To do this, you should learn how to make more mindful purchases.

What’s more worth it: buying a cheap low-quality shirt that will go bad in a few months or investing in a better-quality shirt that will last longer?

Spending responsibly will do more for you in a long run.

2. Pay off your debts

Effective planning requires allocating a portion of saved funds to pay off any outstanding debts, as paying them off sooner will minimize interest and enhance the success of your overall plan.

The sooner you pay off a debt, the less you’ll have to deal with interest, simple as that! 

3. Good financial planning – Road to Success

Proper planning is crucial for gaining financial literacy. When embarking on a significant investment, such as pursuing a graduate degree, purchasing a vehicle, or starting a business, it is advisable to create a comprehensive plan that covers the short, medium, and long-term future.

Controlling monthly expenses can be extremely helpful. 

If you receive the 13th, for example, and don’t do financial planning, you’ll probably spend the benefit as soon as it enters your account. However, if you have long-term plans, you might invest that money instead. 

4. Save your money for emergency

It is important to set aside money for unexpected events, such as job loss or car repairs. 

A good rule of thumb is to save enough to cover your cost of living for at least six months. This will ensure that you can maintain your standard of living without having to withdraw from other investments. 

When it comes to emergency funds, it’s best to prioritize liquidity over profitability. This means opting for safer, more easily accessible investments. Building an emergency fund may take time, but it is worth it in the long run.

5. Include your family in the process

If you don’t live alone, you should think about introducing family budget control.

There are several ways you and your family can cut down their costs and save more money. If you still don’t have it, creating a monthly budget might be a good starting point. That way you’ll have better control of your expenses and improve your financial position. 

What’s important is – to talk to your family. Let them know you’ll be cutting unnecessary expenses in the future, and that all of you will have to be more mindful when it comes to spending. 

Review your utility bills, look for free or low-cost alternatives, and cut back on transportation costs. There are hundreds of options out there and some basic research might set you on the right track!

6. Plan your routine

Planning and organization are the two main pillars of becoming financially educated.

By implementing a routine, you can eliminate impulsive expenses. Eating out every day or taking expensive trips should be considered a luxury.

Responsible decisions such as making lunch at home, cutting down credit card expenses, and going out less often on the weekend, might do good for you and your budget.

Planning the routine and organizing the finances won’t necessarily make your life more boring. In fact, this may help have more money to do different things, such as that dream trip, extra money to order sushi once a week, buy new clothes, and so on.

7. Invest your money

You already know how to manage your budget and you’re pretty good at it?

Well, you might wanna start investing as investing your money is a great way to build wealth over time.

Building wealth through investing and good financial planning are two sides of the same coin. Planning is basically a financial roadmap that takes you on a step-by-step journey where each point is a goal you set yourself to reach at some point in the future. 

Investing, on the other hand, accumulates the value you gain over time by moving through that roadmap. 

So, let’s talk about investing and how to do it properly!

Investment portfolio

You’ve probably heard about investor profiles. 

There are many different types of investments to choose from, each with its own set of risks and potential returns.  

An investor profile is a set of different understandings of risk tolerance and investment preferences. Some people are willing to risk more, some less. Some investors have more realistic goals, while some might go for the big buck in a short time.

Contrary to what many people think, there is no better profile than the other, as long as the investor feels comfortable and confident about investments. 

Some popular options for every investor include stocks, bonds, real estate, and mutual funds. These options are what your portfolio is consisted of. 

Protect assets

Unfortunately, bad and unpredicted things can happen along the way. You may have to stop working, for example. That’s why it’s important to plan.

Plan acquisitions

Planning is the secret. Don’t go into debt to get what you want. There’s no harm in making a few larger purchases, as long as you’ve done your due diligence.

Adjust your emergency reserve

In the year of the pandemic, we learned that the traditional three-to-six-month emergency reserve of your living costs may not be enough. In a somewhat unusual year with many challenges, we realized that a spare budget that lasts twelve months or more can be essential.

Building a solid reserve that can really withstand times of crisis does not have to be difficult to achieve, as long as you have persistence. It all starts with saving!

That’s why planning is vital. If at any point anything goes wrong, with proper planning, your other investments will not be compromised.

Build wealth

To start accumulating money, you’ll want to focus on long-term investments. In addition to being the way to achieve your goals, it may make it much easier to sleep at night if and when a stock plummets.

Some of the challenges you may need to overcome are common mistakes that negatively affect your budget, such as spending too much on non-essential purchases, job insecurity, and, above all, not having enough money saved.

So, here are two pieces of advice to help you overcome these challenges!

– Identify what really matters: when thinking about planning, it is important to have a clear understanding of how much you earn and spend. Thus, it is possible to know what amount you’ll save every month and direct it to the different strategies mentioned above.

– When it comes to spending, prioritize what is truly important. Identify the necessary expenses, such as bills related to health and safety. Keep in mind that your well-being should always be a top priority. By prioritizing, it will be easier to determine the amount needed for emergency savings.

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