Summary of Financial Literacy

Today let's review the summary of financial literacy.  Just as a ship probably will not get too far without a compass before getting lost, everybody needs some financial navigation as well.  This is where financial literacy comes in handy.

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As we look at the definition of financial literacy from Wikipedia, Financial literacy is the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others.”

It is a detailed definition, but you can quickly see that money management is more than punching in & out of a time clock at a job like Fred Flintstone.  You could say that financial literacy is the “bedrock” of personal and business finance. (Pun intended) .  A business that keeps getting further into debt with no escape plan will not stay afloat long and “x” amount of employees will no longer have a job.  You would not willingly invest in a company like this as you lose all your invested money as well when the ship finally does sink.  Think Enron.

Real World Application

You are probably asking, “What does financial literacy mean to me?”  As simple as I can write it, You need to be financially literate to not have all your income going to bill collectors every month.

If you manage your money successfully, there will be immediate sacrifices for long term rewards.  You will still have opportunities for fun now, just remember life is a marathon and you do not want to exert all your energy at the start or you will not win the race.

Start by paying your bill each month, on time.  If the only way you can do this by cutting up the credit cards, do it!

Read some financial planning books and there are plenty available.  I personally recommend Dave Ramsey.

Once you develop a routine, you realize what your typical bills are each month and hopefully you have money left over each month.  If so, you can save that money in a bank account & forecast what future expenses you might have such as vacation, car payments, or saving for retirement.

The ultimate goal of personal finance is to be able to retire and not outlive your savings.  If you are in your 20's or early 30's, retirement is like the light at the end of the tunnel that you still cannot see.  The light seems even fainter when you are still paying off college, starting a family, and tying to obtain a mortgage for a home large enough for your future.  With all this said, allocate 10% of your income for retirement so you will not need to “catchup” later.

This Is Possible

All this talk of responsible finance may feel overwhelming.  It isn't an easy task, especially if you are one who likes to give gifts or are going through a tough time in your life right now.  We all have immediate issues that need addressed and perhaps speaking to a financial professional is the next logical step to help you reach the goal of financial freedom.  People want to naturally help each other as much as possible.  It will not happen overnight and something that cannot be put on “autopilot” so you will never have to wonder if there is enough money in the bank account when you go to the store.

A successful financial you, means that you are disciplined, responsible, and able to take some risk to earn passive income as a reward of your financial savvy.

Josh founded Money Buffalo in 2015 to help people get out of debt and make smart financial decisions. He is currently a full-time personal finance writer with work featured in Forbes Advisor, Fox Business, and Credible.