* Listed as a resource for a personal finance module by Independence University (Jan 2020).
Do you often think about how important money really is?
While money is not really talked about during the average social gathering, you probably know some friends or family members who seem to always struggle with their finances.
Without going into a deep philosophical discussion about money and spirituality (it’s out of the scope for this blog post!), it’s a fact that you need money in order to afford basic necessities in life. Money impacts all of us and our decisions have an impact on our finances.
Living paycheck to paycheck can be a very stressful way to live. While you may have a job that pays the bills, an emergency or unexpected big medical bill has the potential to wreak havoc on your life.
Financial literacy is similar to learning any other language. You have to use and apply your knowledge to stay proficient. There are certain terms and concepts you need to be aware of, and practice makes perfect when you’re building your awareness with money matters.
Regardless of your age, occupation, or income level, having a solid grasp on your financial situation helps you to be responsible with how you allocate the money that you earn. You’ll also have to be honest with yourself, so that you know how much money you need to live a lifestyle that makes you happy.
Here are some reasons on why personal finance is important — and why you won’t regret improving your practical knowledge on the subject.
Listen to Justin address this topic on Episode 27 of Optimal Living Daily.
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Download our checklist on the purpose of financial knowledge to always stay on top of your money matters.
Money and Security Needs
Many of us didn’t grow up with a structured financial class or program when we were at school.
Knowing about money matters goes beyond knowing that most of us need to have a job in order to pay the bills.
Here are some financial topics which are important to be aware of:
- Creating and sticking to a budget
- Paying bills on time
- Credit scores and credit cards
- The power of compound interest
- Gross vs. Net Income
- Saving for retirement
- Time value of money
According to Personal Finance by E. Thomas Garman and Raymond E. Forgue, understanding personal personal finance topics offers people “a better chance of success in facing the financial challenges, responsibilities, and opportunities of life.”
Steps to achieve financial success include managing your spending, selecting the right insurance, and investment planning.
Budgeting, Saving and Spending
Financial planner, Jeff Rose, has a well-received video on the 7 Financial Skills he wished he had learned during high school.
A $150,000 salary is not much if your monthly expenses exceed the amount that you’re bringing in. Likewise, if you earn a third of that amount but budget, save, and live within your means, you’re actually in a less risky financial situation.
Defined Sight mentions that a closely watched budget can be the thing that stops you from overspending on status symbols or luxuries like expensive cars. Instead of adding a new lifestyle upgrade in order to keep up with your friends or neighbors, you’d refer to your budgeting plan first to stay within your means.
Financial basics have an impact on our daily existence, from grocery and transportation bills to long-term saving and investing. Instead of spending impulsively, you stay in control of your money when you’re away of what each dollar you earn is going towards.
If you’d like to start saving, remember this basic tip from Dave Ramsey: “Don’t spend more than you earn!”
Planning for Retirement
Does retirement seem like a long way off to you?
Retirement planning is an important thing to get started on as soon as possible.
It may be the last thing on your mind when you’re in your early twenties… but time passes by very quickly. You could move several times, change careers, get married and have a family, and be in your forties before you know it — and you’ll be wondering where all the time went.
During retirement, income drops and you might want to spend your time on hobbies, some travel, or with your family. Or you might simply want to worry less and not feel dependent on job for income to pay the bills.
Saving for retirement is part of NFL linebacker Brandon Copeland’s financial literacy class, that he nicknames “Life 101.” During the 2019 offseason, Copeland is teaching a class at his alma mater (Wharton University) about budgeting, saving and the power of compound interest.
“You need to attack your financial health, your financial well-being and get to work on creating a better future for yourself.” – Brandon Copeland
He added that being able to cut expenses will help you to save money in order to build a nice retirement fund.
To sum up, retirement planning should not embarked upon when you’re set to retire. The key to a successful retirement plan is to start early, evaluate your needs, and set goals and stick to your long-term plan.
Staying Out of Debt
Avoiding debt is vital if you want to manage your finances well and build wealth.
If you're frugal, you would also want to avoid lifestyle creep so that your expenses stay mostly the same even after an increase in income.
For example, if you go from a $30K per year salary to a $75K yearly salary, but increase your spending exponentially, you may end up having less leftover as compared to your lower salary.
Credit cards can also be a dangerous thing to have, especially if you have poor financial management skills.
With consumer, credit card, and student loan debt at epic proportions, it may seem like it’s a part of modern society that you can’t escape.
You can, however, learn how to manage money to break out of the cycle, even if your social circle considers debt to be a “normal” part of everyday life.
Dameion Lovett, Campus Director of Financial Aid at USF Tampa, says:
“Financial literacy is important because it’s one of the things that will encompass just about every aspect of a person’s life.”
Did you know that most Americans spend more time on social media than on their finances?
Instead of social media scrolling, think about how much you could learn if you spend some of that time to improve your financial knowledge.
Don’t wait until something bad happens or for a big-ticket item to start thinking about money matters. If you spend time learning about your finances, and how to improve and make positive changes, you’re that much closer to achieving all of your financial and life goals.
Do you have any money tips you’d like to share with (or ask) our readers? Let us know through our very friendly Facebook Group!