Improve your finances through financial literacy
Nowadays most people realize the importance of improving their financial literacy as an essential life skill. But despite the wealth of information available online, it’s not always clear how you can put this in practice and generate real results. The goal of this post is to highlight some key ideas and motivate you to start taking action.
1. Assess Where You Are
As with most things in life, the first step can be the most difficult one to take. But once you have taken your first step, you will find it easier to continue on the path of improving your finances.
In this case you need to start by gathering information so that you can have an accurate overview of where you stand financially. Start by going through your bank statements in detail. If you use a budget (and we strongly recommend you do), look at how much you have been spending versus how much you have been making. If you don’t have a budget, this would be a good time to create one. You can find more information about budgeting on our website.
It can feel intimidating to dig up your financial information and face the reality of your finances, but this is an important first step. If you don’t have an accurate overview of your current situation, it will not be easy to identify what changes you need to make.
A good tip is to write down all the information you gather. Everything from how much debt or savings you have, to spending categories. Once you feel you have a good overview of where you stand, the path forward will become clearer.
2. Set Goals
Having clear goals to work towards, not only makes it more likely to reach those goals, it will also allow you to measure your progress. Visualising those goals and seeing yourself achieving those goals can be incredibly powerful.
Now that you have a good understanding of your financial situation, you can start prioritizing your financial goals. Before diving into books and blogs to learn about and understand financial terminology (although this is important too), you should first prioritize your goals. This will vary from person to person. For some people the highest priority could be to secure their retirement. For others it could be saving up for the education of their child.
No matter what your motivation is, having a clear understanding of what you are working towards makes it easier to improve your financial literacy because it allows you to see the end point. Nowadays there are plenty of sources providing information about financial literacy but unless you have a motivating factor it can be easy to simply absorb all that information and never take any real action.
3. Learn and Understand the Lingo
Having clear goals to work towards, not only makes it more likely to reach those goals, it will also allow you to measure your progress. Visualising those goals and seeing yourself achieving those goals can be incredibly powerful.
In some ways improving our financial literacy is quite similar to learning a new language. And just like learning a language, the earlier we start learning it, and the more we practice using it, the easier it becomes.
Although the terminology you come across could be intimidating at first, there are plenty of sources that provide information in more user-friendly formats and it’s a matter of finding what format works best for you. For some people, information provided in infographics is easier to absorb and remember, while for others podcasts could be the best option.
However, it’s not only about learning the terminology. Once you familiarize yourself with the language, you will need to seek out and engage with relevant content so you can continuously improve your understanding of financial matters. We live in the internet age and one of the advantages of this is all the digital tools and resources we can take advantage of.
Content from websites, such as our financial education section, or others, as well as blogs, videos, podcasts can make challenging financial topics more accessible and easier to understand.
4. Convert your Knowledge into Action
Gaining the knowledge will make you feel empowered but the real benefits arrive when you are able to put that knowledge to work and turn it into concrete actions that can help you reach your financial goals.
Having the knowledge and information is one thing (and maybe the easiest task) but converting that into real tangible actions can feel intimidating and uncomfortable. A good rule of thumb is to start with small steps and focus on the low hanging fruits. This makes it easier to get started on the journey and create momentum. Don’t try to do too many things at once. You won’t be able to completely transform your financial situation right away. Think of this as a journey and taking the first step will get you one step closer to the goal line.
As an example, you may find yourself with a lot of debt; and you wouldn’t be alone in this. Earlier this year, the banks predicted Canadian household debt would rise to record levels– $1.85 in debt for every dollar of disposable income. If you focus on the actual debt level or on trying to repay it as soon as possible, you may end up intimidated and stressed. Instead you can look into concrete small actions you can take right away to make the situation more manageable. Your options could include debt consolidation, renegotiating payment plans, or refinancing with a better interest rate. The important point is taking actions that move you in the right direction- no matter how small.
Financial knowledge would give you the information you need and help you identify the actions you need to take in small steps but unless you take action, that knowledge cannot translate into concrete results.
Finjoy Capital is not a financial advisory firm.
This article is for informational purposes only and is not a substitute for individualized professional advice.
