7 Must-Know Financial Literacy Basics

In today’s world, financial literacy has become a crucial tool for achieving fiscal stability and success. With the increasing complexity of personal finance, it’s essential to have a solid understanding of financial literacy basics. Without it, navigating through various financial options can be overwhelming and intimidating.

So, do you know the financial literacy basics?

Whether you do or don’t know, keep reading. You’ll either refresh your memory or learn something new.

There’s a big difference between being educated and not being educated in personal finance.

Speaking of which, what’s the difference between a lack of it and being financially literate?

Let me put it this way:

A lack of financial literacy means poor money management.

Being financially literate means good money management.

By applying the second one of the two above, you can be able to make clever financial decisions.

The best way to be diligent about personal finance is by learning about budgeting, saving, investing, managing debt, etc.

Once you start learning, you can understand how interest rates work. Also, you’ll become proficient in inflation and how it can impact your life and finances.

Ideally, people should start learning financial literacy as a child from their parents. But if that’s not the case, you can educate yourself, whatever the circumstances.

So, keep reading this blog post because you’ll dive deep into the fundamentals of financial literacy basics. You’ll arm yourself with the knowledge and skills you need to make informed financial decisions. So, get ready to gain a solid understanding of personal finance.

It’s never too late to learn anything new. Once you start, there is so much more to learn.

What Is Financial Literacy?

Financial literacy is all about being savvy with your money. It’s not just about knowing how to manage a budget or save for the future but also about understanding the ins and outs of investing, managing debt, and navigating the complex world of financial products.

It’s also about understanding the broader financial landscape and being able to navigate it confidently.

It empowers women to take control of their financial situation and make wise choices. Also, women can make informed decisions that can set them up for long-term financial success.

By developing financial literacy, you can avoid financial pitfalls, build wealth, and make choices that lead to long-term financial success.

The Importance And Benefits Of Financial Literacy Basics

Financial literacy is vital.

Good money management requires a good knowledge of financial literacy basics. But knowing how to apply it in everyday life matters, too.

Being financially literate will help you understand that overspending is a bad spending habit. And it’s more than that.

For instance, if you buy all those items you intend to buy with a credit card, you can end up in debt.

But with financial literacy, it’s quite the opposite. It helps you to be intentional with your money. Also, it helps understand how credit cards work, as well as other types of loans from a bank.

For instance, you want to buy a refrigerator. Then, you do your research. You visit different shops that sell this item. Also, you compare the price and the brands until you pick the right one.

But before you do any of these above, you have a sinking fund dedicated to buying new items for your home.

You know things like refrigerators will break, so you save money in advance. And then you pay for it in cash. (With the money from the sinking fund, of course).

You know that paying for it with a loan from a bank is an unfavourable financial decision. (You’ll have to pay it back with an interest rate).

Having a solid foundation in financial literacy basics can help you build a secure and prosperous life.

Resources To Learn Financial Literacy

The World Wide Web is overflowing with resources about financial literacy basics.

You can always start with personal finance blogs like this one, and others too. Since you’re here, keep reading and exploring The Fiscal Geek. The more you read, the better.

(All you need is an Internet connection and a computer laptop).

You can then move to watching YouTube videos and listening to podcasts dedicated to personal finance topics.

And don’t forget about books with personal finance topics. You can buy them in a bookstore or borrow them from a library. So, get a membership card asap. (And don’t forget to return them on time).

See?

There are so many resources available at your fingertips. Use them all. And stick to those which help you move along with your finances.

But first, start with the financial literacy basics below.

1. A Transaction Account Vs. A Savings Account

Banks and banking also belong to financial literacy basics.

In today’s society, you should form a relationship with a bank. Well, don’t pick it just because you need one.

Choose one carefully. It means you do your research. You inform yourself about the terms and conditions the banks offer. Then, you choose the one that best fits your needs.

Why?

Because the bank also has fees for giving you its services. That’s why you need to make the most of your money.

But what will happen once you pick a bank?

Then, you open a transaction account and choose a debit card linked to that account.

That’s how you receive your paycheck into that same transaction account you have opened. Then, with your debit card, you can spend the money from your earnings.

And that is how you form a relationship with a bank.

But it’s quite the opposite when you open a savings account. As the name says, you want to save money.

Once you decide to put money aside, you can store them in a savings account.

You can open it in the same bank you have your transaction account. Or you can choose another bank if you want to.

If you choose another one, pick the bank with the best terms and conditions for your savings.

Ideally, if you can, choose a savings account with low fees and high interest rates so your savings can grow faster.

Also, you can always have another savings account or accounts for various purposes, such as savings for financial emergencies, a vacation, or a down payment on a house.

Use both types of accounts: a transaction and a savings account.

Last but not least, you should have one transaction account, but as many as you like savings accounts.  

2. A Debit Card Vs. A Credit Card

As mentioned above, you should also get a debit card linked to your transaction account.

With a debit card, you can take your paycheck at ATMs. Or you can pay for goods and services with a debit card.

Here is one suggestion: pay your bills online and put some money into a savings account. And take the rest of your paycheck through ATMs. Then, for whatever you need to buy, pay for it in cash.

With a debit card, you can only spend money from your paycheck, and that’s it. But this is a good thing.

As for credit cards, the name speaks for itself. A credit card is a type of loan you take from your bank. A credit card means borrowing money from a lender, aka a bank. That’s never been your money in the first place.

You don’t use actual money. What you use is a plastic card named a credit card. *(A debit card is also a plastic card, so first make sure you know the difference which one from your plastic cards is a debit card).

With this, you can pay everywhere credit cards are accepted.

For instance, you buy an item with a credit card that costs you 45 euros. It only means you’re paying back to the bank 45 euros with an interest rate of 9%.

But you can buy that same item with your debit card. And once you paid for that item with a debit card, you don’t pay it back with an interest rate to anyone.

If no one can talk you out of credit cards (even me), you should have only one credit card. Buy with it only what you can afford and pay the entire balance on time each month instead of the minimum required balance.

That way, you may prevent unmanageable debt.

The big takeaway: get rid of your credit card and stick only with your debit card. Just be mindful: track your transactions when using it. 

3. Debt, Loans And Credit

Do you borrow money from a bank without understanding how interest rates work? When was the last time you looked into your credit card balance?

Although I don’t recommend taking any loans, you can always inform yourself.

For instance, you would know there are different types of loans, like:

The types of loans above have different interest rates, and each has an individual period for paying back.

You can get into a never-ending debt if you take loans from a bank just because everyone else does. And this is so true with credit cards.

When you rely on loans to support your lifestyle, you end up in a spiral of debt, which is very hard to pay off.

The only loan I can understand is getting a mortgage, as having a roof over your head is essential.

So, if you know all the possible ways to pay off your mortgage asap, then go for it.

4. Budgeting

A budget is a spending, written plan for your money. You can write it in the old school with paper and pen (like me). Or you can write it in Excel spreadsheets/Google Sheets, too.

Choose the writing option that helps you to stick to your budget. And the one that’ll help you achieve your financial goals.

Budgeting is crucial for managing your finances effectively. Just like a roadmap, it provides a clear direction for your money.

It also serves as a guide that helps you navigate your way through your income, expenses, and savings.

By monitoring these aspects, you’ll have a better grasp of your spending and be able to make informed choices on how to distribute your funds. It’s crucial to keep an eye on these factors in order to have a clear picture of where your money is flowing.

But first things first, start tracking your expenses.

As you track your monthly expenses, you can understand in which area of your budget you overspend or underspend. In most cases is overspending.

And if it’s overspending, find ways to reduce your expenses so you can spend what you can realistically afford.

Budgeting enables you to prioritize your spending, ensuring that your hard-earned money is allocated where it matters most.

Also, a budget allows you to be prepared for unexpected expenses by building an emergency fund and planning for enjoyable things like vacations or travelling the world. 

A budget empowers you to take control of your financial journey and make sound choices that will benefit you in the long run.

Last, but not least, pick a budgeting method. Here are budgeting rules, like the cash envelope system (my favourite one), the 70/20/10 method, the 80/20 rule, etc. 

5. Financial Goals

A budget is nothing without financial goals. They give purpose to why you’re budgeting your money. So, don’t hesitate when setting financial goals.

But don’t just set them, also do achieve them. You can – and should – achieve your financial goals.

There are two types of financial goals you should consider: short-term and long-term financial goals.

Short-term financial goals could be anything from paying off debt to building an emergency fund to saving for a vacation/travel.

Long-term financial goals could be saving for a down payment on a house or building your pension fund.

However, when you set up your financial priorities, you should remember that both types of financial goals are equally important.

But it’s getting even better.

Achieving financial goals requires a well-thought-out plan and consistent effort.

So, define your goals clearly and set a realistic timeline for each. Once the goals are set, assess your current financial situation. Calculate income, expenses, and savings potential. Adjust your budget in a way that allows you to save money and reduces unnecessary spending.

Learning about personal finance can improve your financial knowledge and help you make informed decisions.

Stay disciplined and focused, and you’ll steadily progress towards your financial goals. Also, don’t forget to celebrate your milestones.

6. Investing

The word investing can have multiple meanings. I’ll start with some of them. For instance, you may have heard about:

For instance, when it’s about investing in yourself, there are also two meanings, like investing in your education through university degrees and courses. Or invest in your technical and soft skills.

Next time you think about ‘Invest in yourself, you’re your best asset’, this is what it means.

Investing in savings accounts means saving money in various savings accounts. So, you can have a savings account for your emergency fund and another one for your vacation.

Investing in a pension fund means making regular monthly contributions towards your pension fund. Your pension will be your income when you retire and are no longer able to work.

But when it’s about investing in stocks and bonds with cryptocurrency being the new kid on the block. And this is what the word investing is all about and its true meaning.

Investing is super risky, especially if you don’t understand how it works and if you put all your money into it. So, consider your risk tolerance, or in other words, how much you’re comfortable with taking a risk.

Remember, if you want to start investing, don’t do it if you’re for short-term money gain or as a way to earn lots of money in a short period. But if you’re looking for an easy way to make money, one thing’s for sure: you’ll lose big time.

That’s not how investing works. And that’s proof that you’re not serious about investing. You’re either for the long haul or not.

If you’re serious about investing, you need an investment strategy and diversify your portfolio so you can minimize the risk as much as possible. But you can’t make it like, super low risk there’s no such a thing.

Last but not least, never, ever listen to anybody who tells you to invest in a particular stock or bond, which is pretty much a scam, because no one ever knows how much you’ll gain. If they’re so sure about those stocks why they don’t invest in it themselves, right?

7. Insurance

Here are the most common types of insurance you should consider for you and your loved ones:

There are also other types of insurance – but if you’re planning to insure anything and everything out of fear, you’re probably throwing your money in the trash.

So, it’s better to keep things simple and stick to what’s necessary – and if is necessary.

When you think of insurance, you most probably think about health insurance. It’s the first one that pops up in your mind. Well, I know it has in my mind.

And for a long time, I thought it was the only type of insurance out there, until I found out about the others. So, here I am sharing it with you.

As for health insurance, you can get it through your employer or an insurance company. Weight the pros and cons and choose the one that’ll give you the best coverage in time of need.

Do your research about all insurance types. They all have websites, so start from there.

If you’re still confused and can’t decide what’s the best option, seek professional help. An insurance advisor can look at your current financial and overall situation and based on that, can give you the best choice possible.

Remember, regularly review your insurance policies so you know it’s on the right track since this isn’t set-it-and-forget-it (well, none is when it’s about personal finance).

And you never know when an already established insurance policy isn’t working for you anymore.

Then, make changes, as you certainly don’t want to pay for something that isn’t working for you anymore. 

Final Thoughts

It’s never too late (or early) for you to learn financial literacy basics. So start today. It’s always best to start sooner rather than later. Besides, never stop learning because life never stops teaching us. 

Understanding and applying the fundamentals of financial literacy basics is crucial for your monetary and overall well-being. It’s like building a solid foundation.

Start by getting a handle on budgeting, saving, managing debt and move from there.

By improving your financial knowledge, you can pave the way for a better financial future for yourself.

Remember, you have the power to make wise decisions and take control of your financial life. Embrace the financial literacy basics and open up a world of new possibilities. 

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