In the time we live in, we only seem to see what people have, as opposed to the financial exercise it took to obtain those nice things! In order to obtain the things you want most in life, being financially literate is key. Being financially literate means, you have an understanding of a few core areas when it comes to managing your hard-earned dollars.
Our focus on financial literacy and what it means to be financially literate starts with credit and budgeting. When you have an understanding of these things, you can make better financial decisions. How you properly proceed with your money shows what it means to be financially literate.
The 3 C’s of Credit
Although the lingo may be foreign to someone who is just starting their financial journey, it’s good to know the three C’s of credit. Those three words are: Character, Capital, and Capacity. Sure, these terms may sound like nothing, but they actually sum up a person’s credit history quickly.
A credit score is dynamic and can change positively or negatively depending upon how much debt you accrue and how you manage your bills. The factors that determine your credit score are called The Three C’s of Credit. When we break down what character is in terms of credit we are looking at the history of an individual’s character.
A credit score includes a measure of factors that may affect your ability to repay credit. It’s a complex formula that takes into account how you’ve repaid previous loans, any outstanding debt, and your current salary. A lender may decide whether you possess the honesty and reliability to repay a debt.
When we think of capital, we understand a lender will want to know if you have valuable assets such as real estate, personal property, investments, or savings with which to repay debt if income becomes unavailable. Lastly, capacity refers to your ability to repay the debt. The lender will look to see if you the current means to handle the borrowed money and pay it back as agreed.
The Basics of Budgeting
Understanding the basic terms of money and finance can be intimidating, especially if you are just grasping on what it is you are trying to achieve. Budgeting is an important aspect to grasp. Everyone has their own form of budgeting, and there is no right or wrong way as long as you are seeing a positive result.
Creating a budget plan is ultimately the first step in the right direction to comprehending the larger scale of financial literacy. Once you have a budget, you can continue to track spending and revisit your spending plan regularly.
When budgeting, you’ll want to take into account the amount of money you earn from your job that includes your pay, benefits and tax withholdings. Budgeting also requires you to learn how to factor in savings and investments, even if that means incorporating and creating an emergency fund and setting aside money for both short- and long-term goals.
Budgeting also means you are being mindful of your spending – be sure to spend wisely through budgeting and comparison-shopping. Lastly, protect your money by any means necessary.
All things take time. A financially literate person does not simply wake up and know everything they need to about making positive financial decisions. Financially literate folks are able to attack their debt, and refrain from falling back into old habits.
If you’re eager to become more financially literate, there are many tools you can use on your own to help understand and manage money. Start with the tools that are feasible and free. Several banks offer free credit score tracking programs. Not to mention our very own City Girl Savings offers affordable and expedient services.
Why is Being Financially Literate Important?
The era of the millennials is known to be a smart and knowledgeable generation. However, recent studies conclude that they are mostly lacking in financial literacy. Per a PwC survey, millennials have less financial literacy at a time when financial knowledge is crucial given today’s economic volatility and uncertainties.
With the given information you may be questioning who falls in this generational chart – and if you were born between the early 1980s and mid-1990s, you do. It’s so vital to understand how to make sound financial choices so you can confidently manage and grow your money. There are many budgeting methods (zero-based, two-account, etc.), so choose the one that fits your livelihood the best.
Don’t Let a Lake of Education Stop You
Understanding financial basics thus allows you and others to make smarter money choices and be self-sufficient in your financial decisions. It’s a shame that a majority of grade schools are not teaching personal finance to their students.
It’s usually not until you get to college you have the opportunity to further your financial education. Or, in some cases, parents or family members may be misinformed or lack a deeper knowledge that children cannot learn from.
Creating a spreadsheet has been very useful for people who are trying to be more financially literate. Most of the time math isn’t a strong point for many – which can call for using spreadsheets. It can make this easier as the software will do the math for you.
There are so many ways you can go about improving your own financial literacy. Don’t let a lack of education or proper influences growing up stop you. We are all worthy of financial independence, but it starts with knowledge!
Related: 20 Things to Do for Your Finances in 2020
In conclusion, being financially literate can only further your financial growth instead of hindering it. There is nothing wrong with not understanding something and doing your independent research to bridge the knowledge gap. If you have friends that can help or know financial institutes who can break down money lingo into simple terms, use them!
Have you ever used services to help you understand the true meaning of becoming financially literate? If so, how helpful was it? If you haven’t and need assistance feel free to set up a consultation with City Girl Savings – we are here to help!
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