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10 basic rules of financial literacy

financial literacy

10 basic rules of financial literacy

What you will find in today’s article is not magical quotes on how to become richer. These are 10 fundamentals of economic activity for every modern person, which will help to manage their money wisely: save it, spend it rationally, save it and invest it correctly.

Spend less than you earn

In 1960, the famous Marshmallow experiment was conducted at Stanford University . Scientists have offered a group of children a piece of marshmallow. Then they said that they would leave for a few minutes, but if the children could tolerate and did not eat their marshmallows, they would get another bite. 

As a result, only a third of the children did not succumb to temptation and received their reward. Over the years, these children have shown a higher level of success in many areas of life.

The ability to limit your desires and save money is a key skill in achieving financial freedom. Make yourself a rule to save at least 10% of your income every month, you will be able to live on the remaining 90%, right?

What is it for? In the future, you will be able to create passive sources of income on the basis of this capital, replenish the reserve fund or accumulate funds for something expensive.

Meet basic needs first

When the question is between “deferring this amount for the purchase of an apartment” and “once again go abroad,” what choice will you make? Common sense dictates that the basic need for housing should be met in the first place. And only then you can go into all seriouss and spend money on entertainment. Financial literacy.

Do not make spontaneous purchases

A small story of a real person is quite appropriate here: “Once I was in another city and came across a huge book market. My passion for books is too great for me to be stuck there for an hour. And, as a result, I came out with a pile of books. Not only did they impede movement, but since then I have not read any of them. The amount, of course, was spent small, but completely pointless. “

Here is one more fact. By the end of 2019, the global advertising market will be $ 625 billion. Do you know what a good percentage of this money is spent on? To make you break this rule and still make spontaneous purchases.

A way to avoid this is to plan your expenses. Make your own budget every month. Highlight mandatory payments (utilities, transportation, Internet, various subscriptions, etc.), funds for food, entertainment and other categories.

Take into account not only the purchase price, but also its contents

When deciding on a purchase, consider hidden costs that are not included in the basic price. Purchasing a car means spending on gas, parts, insurance, maintenance, etc. Traveling abroad means not only a fee for the finished tour, but also other expenses for souvenirs, additional excursions and force majeure. Consider this factor and always plan a maintenance budget. Financial literacy.

Create financial reserves

Any state or private enterprise has reserve funds in the budget structure. Their presence is due to the unpredictability of the world in which we live. Financial crises, job loss, sudden illness, lawsuit from the ill-wisher – all these “black swans” can instantly empty your wallet. Be sure to create your own contingency reserve fund.

Track your spending

There are three main mysteries of life: where does the dust come from, where do the socks disappear and where does the money go. Well, at least one of them you can solve. Observe your spending for a month, and you will surely find amazing patterns. And also – a lot of opportunities to save.

You can simply collect checks and write amounts in a notebook or use one of the mobile applications for financial management.

Learn to save

Savings are not a combination of money, but a conscious approach to shopping. Never grab the first product you get. Take some time to explore the market and choose a better deal. 

Haggle – it costs you nothing, except for the benefits that you can get. Use discount programs, cashback and in general everything that will help you save any share of expenses. Just do it all without fanaticism.

Search for passive income sources

An intelligent person works for money, for a wise person money works for him. This can be roughly described as the paradigm of passive income. 

If you did everything right, diligently saved money, then over time you should accumulate a little capital. Now you have come to the most important step for your financial freedom – creating a source of passive income.

There is no need to describe why this is so cool – you yourself understand everything. You just need to take care of this and look for opportunities to invest your money. It can be a business, securities, a deposit – anything that will bring money without your participation.Financial literacy.

Diversify Risks

Remember the story of how Robinson Crusoe kept his gunpowder from being struck by lightning? He simply placed it in several bags and hid it in different places. This was his main capital, and he disposed of it very correctly.

You must do the same. Keep money in different banks, in different currencies, use different sources of income. This will save money from inflation, crises, thieves and other unpleasant surprises.

Secure Your Funds

In the modern world, it’s not enough to bury your money in a jar under a tree to protect it from ill-wishers. According to official figures from the Central Bank of the Russian Federation , in 2018, hackers stole almost 1 billion rubles from Russians, and this figure is growing every year. But how many such thefts have not been taken into account …

The more we switch to cashless payments, the greater the danger of our money. Previously, people carried a small amount with them in their wallet, the rest was stored in a safe place or in a bank. 

Now hackers break into bank cards in thousands and get immediately to large amounts. Keep some of the money in cash, and come up with strong passwords for cards and e-wallets.Financial literacy.

These 10 basic rules of financial literacy will help you become a little smarter in terms of interacting with money. But, of course, there are many more secrets in this business, and if you want to know them, we recommend reading a couple of wonderful books: “ Rich Dad, Poor Dad ” and “ Cash Flow Quadrant ” by Robert Kiyosaki.

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