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Financial literacy is an essential skill; it applies to everything, from how we spend our free time to where we choose to invest our resources. Without financial knowledge (budgeting skills, the ability to set priorities and understand the value of money), it would be very difficult, if not impossible, to live a stress-free, happy life.
As part of Financial Literacy Month, Ashton College has introduced some common money thought traps and how to avoid them. This week, we will be providing information on financial literacy to help you form healthy habits for managing your personal finances.
When it comes to money, we all are vulnerable to overspending, making rush decisions, getting ourselves in debt or losing money to unwise investments. However, some people seem to be keener on learning about money and forming saving habits than others. The main reason for that is motivation: knowing why you are saving, and what you are saving for.
Here are a few tips that can help you think about your money differently:
Goals are the most important motivator. If you know what you are saving for, you will be less likely to give in to impulsive buying, more likely to create a savings account, and most importantly, likely to start contributing to it!
Take a moment to figure out what some of your short-term and long-term goals and dreams are. Would you like to buy a new piece of furniture? To save for a down payment? To get out of debt? Put your desires in front of you and estimate how much money you will need for it. That will give you an idea of how to set your priorities.
If you are not a great self-motivator – and even if you are – setting a goal is not always enough. The best way to hold yourself accountable is to share your goals and visions with the people close to you – your family or close friends. Spend some time discussing your goals with your spouse or your parents: see what their goals are, and what your goals are as a family. See what you need to achieve those goals, how much money and time would those goals and dreams demand. Publicly announcing your goals can encourage you to start forming healthier habits around your spending and saving.
The next step is to start planning for your dreams. Before creating the action plan on your spending, take some time to distinguish your wants versus your needs. For instance, you may need a new bed, but you may want a bed that will require an extra five months of savings. Look at the things you want and see whether it’s worth to get a more expensive object, which would require working harder, or a simpler object that satisfies your needs, while also helping you stay on track with your other goals.
Remember: set realistic and measurable smaller goals to encourage yourself to keep up with your healthy money habits. The next two sections will help you learn how to do so.
In order to set realistic goals and start working towards the things you want, you need to first figure out your financial situation.
Take some time to look at your salary and your expenses and see whether you are living within your means. Do a simple budgeting session to see what your income is, what your monthly expenses are, and how much can you potentially save each month. Doing this will help you to be realistic about your goals. For an example of budgeting, click here.
A great way to have more financial security and ensure that you are not overspending is to have a savings account. Creating saving habits can take some time, but it can help you immensely to reach your goals and have the things that you want in life.
There are a few things to remember when it comes to forming savings habits:
Most of us have some debt on our shoulders, be it from a mortgage, student loans or credit cards. Unfortunately, having debt has become so normal in our society that people sometimes do not take the time to review their debt and start creating an action plan to become debt-free.
Be different! Look at your financial situation: How much do you own? What is the interest rate? How long will it take you to pay it off? Use one of the tools available online, such as a debt calculator, to be realistic about your payments.
In order to take control of your money, you should take advantage of the resources available to you.
Sometimes, keeping receipts for certain activities can help you save a lot of money that you are not even aware of. For instance, you can claim taxes on your transit, or on student books, which can amount to quite a bit. You can also take advantage of the tax-free savings account. Do your research and stay organized, and you’ll be able to get more returns at the end of the year.
Debt calculator is only one of the tools that can make your budgeting easier. There are many other things that can help you as well if you just look for it! Multiple books and articles are written on the topic of money; if you are not much of a reader – there are always audios and videos you can take advantage of!
Take the initiative to educate yourself on money matters. After all, it is your money, and it is you who will benefit from taking control of it.
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