Be financially literate and educate your children about the same

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By: Good Nelly
on 12th May,2015

Being financially literate will help you manage money and also educate the next generation about the same.1.
Be financially literate and educate your children about the same

Financial literacy is very much essential to make good financial decisions in day-to-day lives. Being financially literate will help you manage money and also educate the next generation about the same.

1. Familiarize yourself with finances

To consider yourself a financially literate person, at first, you should have a clear idea regarding the amount of money coming in as a household monthly income. Along with that calculate how much and where all of you are spending each month. To do so, every month, review your bank statements, credit card statements, utility bills along with certain fixed expenses such as your loan payments.

2. Plan a suitable budget with careful consideration

You can consider that you've reached the first step of financial literacy when you're able to plan a suitable budget. It should meet the necessities of every family member and also you can save a considerable amount every month. You should also revisit your budget every month and revise it if required. Along with it, it is better if you have an annual budget. By doing so, you can assess every month how far you have progressed towards making your annual budget successful.

3. Be a role model for your child

It is quite important to start your children's financial literacy classes at a young age. Children always imitate and follow what their parents do. Therefore, it is very important that you practice good financial habits and educate your children regarding the same. For example, prioritize your expenses and do not incur excessive debts which you can't manage properly. You should also stay current on the loans, save for rainy days and retirement.

4. Differentiate between good debt and bad debt

Debt is always not bad. Just that you have to differentiate between good debt and bad debt. A good debt, like a mortgage loan, helps you build wealth. Once you take out a mortgage and start making payments on the loan, you start building equity on the property. A house usually appreciates in value. So, with time, you'll be able to build with a debt. On the other hand, if you incur too much credit card debt, you'd have to pay interest on the outstanding amount till you repay it. So, it can be considered bad debt if you have the habit of revolving your credit card balance. Practice this strategy and also educate your children regarding the same, so that they also learn to strike a balance between the two.

5. Educate yourself on personal finance

There is no age to become financially literate. Even if you know the basic principles of managing money, you should update yourself on the changes. So, make a habit of learning personal finance articles available in the internet. You can also take part in various employee assistance programs and religious organization programs. This way you can update your knowledge on managing personal finance in a better way.

6. Set financial goals and work towards achieving them

It becomes easier to be financially responsible when you have monetary goals and work towards achieving them. It can be anything. Your goal can be to save a certain amount for the rainy days or to save in order to buy an expensive item.

When you are being financially literate, it is quite important to avoid money mistakes. So, try to limit your expenses and use your credit cards for your benefit. And, most importantly, set aside a certain amount every month and budget on the remaining amount. It will help you save forcefully which in turn, will benefit you in future.

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