Five Simple Steps Toward Financial Literacy

Financial Literacy Does Not Have To Be Difficult

First Published Date: November 15, 2012 ADawnJournal.com

November is Financial Literacy Month. This is a special post to participate in Blog for Financial Literacy campaign. 

Financial literacy does not mean you need to have an MBA, CFA, CGA, and so on or you spend hours endlessly deciphering the Wall Street Journal everyday. Financial literacy begins with taking some simple steps and today I will discuss such basic steps you can take right now to build a solid financial future.

Step One – Spend Less Than You Earn – This is the most basic, yet most difficult, step to take to become financially independent. If you can’t do it, any other financial plans will become meaningless.

Step Two – Pay Yourself First – If you have money in your hand, for sure you will spend it and it will be gone. Depending on your affordability, set aside 5 to 20 percent of your income every month and invest it in a low MER, income-generating and less volatile mutual fund or ETF. Do the whole Step 2 automatically so you don’t see this money and it gets deducted and invested automatically each month, year after year.

Step Three – Avoid Accumulation Debts – Avoid the accumulation of credit card or any debt. Use a credit card only when you can pay it off in full each month. Avoid buying a car or furniture on loan. However, good loans to build asset and generate income are okay, such as mortgage, investment loan, etc.

Step Four – Build An Emergency Fund – Have six months to one year living expenses set aside separately in a high interest paying savings account, mutual fund, or ETF.

Step Five – Set Goals and Review – Know what your goals are (such as buying a home, paying off a mortgage, retirement, etc.) and start saving realistically to pursue your goals. At least once a year review your progress and adjust your spending habits to reach your goals.

These five steps are not the end of financial literacy journey; they are only the beginning. Once you kick off your journey with these basic steps, start educating yourself more on financial literacy and flourish to become financially literate and independent.