Financial literacy is just a fancy term for understanding your money—how to make smart decisions about spending, saving, and even investing. It’s like learning a new language with words such as budget, savings, credit scores, and investments. Financial literacy is crucial, especially if you’re receiving financial assistance through government programs.
It’s essential to understand personal finance basics no matter your income. Here’s a straightforward guide to help you learn to navigate these waters smoothly, with practical tips tailored for young people accessing financial assistance.
Creating a financial plan can feel overwhelming, especially when you’re new to it. But financial planning is incredibly impactful. Below are a few tips to help you manage your money and reach your goals.
Make Financial Goals
What are your aspirations? They could range from immediate needs like saving for a laptop, to long-term ambitions like owning a home or preparing for retirement. Being clear and specific about your goals will make them more achievable.
Consider Your Current Financial Situation
Look at your finances, including your:
- Income. Calculate all sources like wages from jobs, earnings from side gigs, and financial support.
- Expenses. List your monthly spending across various categories such as housing, food, transport, and leisure.
- Debts. Don’t forget to consider any debts like student loans or credit card dues.
Learn How to Budget
With a clear view of your income and expenses, you can draft a budget. This plan outlines your expected earnings and expenses, guiding you to manage your funds without overspending. This approach is crucial for anyone, particularly if you’re managing limited funds.
Plan to Save
It might seem impossible, but try to save what you can for emergencies and big purchases. Savings are essential for financial security. Even if it is only a few dollars at first, the practice of saving can become a healthy financial habit.
Automating transfers to savings accounts after receiving your paycheck or when you make a purchase can help build savings effortlessly. For example, some banks have a cool feature where they round up your purchase to the nearest dollar and then put the extra change into your savings account. So if you buy something for $3.50, the bank rounds it up to $4.00 and the extra 50 cents goes directly into your savings.
Track and Adapt
Your financial plan isn’t set in stone. Check-in regularly—say, once a month—to see how well you’re sticking to your budget. Are you overspending in some areas? Do you have more wiggle room than expected? Adjust your budget accordingly.
Protect Your Financial Future
Try to save at least three to six months’ worth of living expenses in an emergency fund to cover unforeseen needs. Also, having health, auto, and renters’ insurance can safeguard against significant financial setbacks.
Let’s focus on a key element of a financial plan that connects all the pieces: budgeting. Next, we delve into how you can start a practical personal budget to control your finances effectively.
