How to Become Financially Literate by Yourself?

What is Financial Literacy?

If you have been trying to save money or get on top of your finances, you might have come across the being “Financially Literate”. I have heard financially literate many times when before learning what it means. It is easy to conclude that being financially literate is becoming more educated when it comes to money and finances. However, how does someone become financially educated?

Financial Literacy is gaining the knowledge and skills to effectively manage your money, taxes, mortgage, debts and investments. Financial Literacy will help you to:

  • Assess your current financial situation
  • Set up financial goals 
  • Take legal actions
  • Plan your retirement 
  • Become financially independent

Anyone can become financially literate. Since the beginning of the pandemic, more people have realised the importance of financial education. Living without financial knowledge where you control little to nothing of your income has awakened more people to the fact that they need to be more knowledgeable about finances.

Although you can always ask your accountant, broker or financial planner, as they can be crucial to your financial education, you still have to understand the basics of money yourself. It will give you confidence in major life decisions such as buying a house or investing your money.

Self-made millionaires and financially independent people are not accidentally Rich. They educated themselves to become Financially literate first before making major life decisions. If you are seeking to become financially independent, then financial literacy is your weapon. I have written an article about What Rich People Do That Poor People Do Not, feel free to check it out if you are interested in learning more.

Seven Ways to Become Financially Literate

1-Read Finance Books

Reading books is the foundation of your Financial Literacy. It will set you apart from a mediocre person and give you confidence in managing your life. Listening to podcasts or reading newspapers can help to boost your knowledge, but reading books will give you concrete information to act upon in the future.

The subject of money is not taught to us well at school. It does not matter where you live, the chances are you have not been introduced well to money. Most of the information about finances has probably come from your parents. That can depend on how your parents are financially literate. Therefore, to educate yourself, you have to read at least one or two books.

If you have not read any finance books before in your life. I highly recommend reading Rich Dad Poor Dad by Robert Kiyosaki. It is the world best selling finance book, and it is where everyone should start if they are interested in becoming financially independent.

For people who live in Australia, I highly recommend reading The Barefoot Investor by Scot Pepe (The Aussie version of Rich Dad Poor Dad).

2- Listen to financially educated experts

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This step solidify your knowledge. When you subscribe to Youtube channels, Blogs, podcasts and Newsletters, you immediately gain access to the latest news and hacks about saving money and investing. It immerses you into the world of finance in an entertaining way.

I highly recommended subscribing to topics you want to learn more about, such as property or the stock market. It will give you more insights into the government new tax rules and open your eyes to investment opportunities. Listening to experts can give you more confidence and help to break the ice on the subject of finance. In addition, you can always ask them questions about financial matters.

3- Practice self-discipline to manage your finance

Managing finances means that you know how to plan your monthly budget and assess what is essential and not essential. Managing your finances will help you to:

  • Reach financial goals much faster.
  • It is the best cure for reckless spending (Shopaholic).
  • Getting out of debt.
  • Plan your retirement.
  • Save money.

People always think that there is a big secret to becoming financially stable. The truth is it only takes a bit of self-discipline. Managing your finances always comes down to the individual. If you want to save money, stop spending it. If you want to get out of debt, start paying them and eliminate the source that got you in debt.

Self-discipline requires patience, the good thing is there are many tools and hacks you can use to manage your finances. Here are some ideas:

  • Using online finance tools to budget your monthly expenses. (There are many tools online)
  • Making an Excel Sheet track your income and expenses. (My favourite!)
  • Opening a new bank account just for saving. (An excellent way to save money, especially if you set up scheduled payments)
  • Seeking the help of a professional financial advisor. (For those with serious debt and Shopaholic lifestyle)

You will be surprised how much change you will see just by implementing one or two of the above.

5- Learn the tax rules in your country

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This one is a no-brainer. You have to know the tax rules and what is required of you to pay, and what you can claim as deductions. You should always pay your fair share of taxes – there is no dought. But if you are ignorant of some tax rules, you can miss the chance of saving lots of money, and you will end up tipping your government.

Luckily, that is where you can seek help from your accountant if you have several assets. The best way to be financially literate in taxes is to browse your country taxation websites. Many of those rules are shown on government sites as they are constantly updated. Therefore, you should always check those sites since they are made for the general public.

6- Learn the difference between “Assets & Liabilities” and “Good Debt & Bad Debt”

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To simply put it: Good debt and Assets are things that put money in your pocket, Bad debt and Liabilities are things that take money out of your pocket. 

Not all debts are bad debts. It is something that you should be familiar with if you are seeking financial literacy. You might hear many people say something like: My house is my asset, or I invested in a new car, that does not mean that it is a good debt or it is an investment. When you become financially literate, you will come to l realise that what many people consider as an investment or good debt, in reality, is not.

Your house is not your asset if you are paying a mortgage on it. However, it can become an asset, if you rent a room in your house on Airbnb that can make money for you. The same thinking applies to your car, your car is not an asset if you have a loan on it, and it is not a good investment because it is a fast depreciating product (aka liability). Nothing is an asset to you until it earns you money, or it is going to earn you money.

Naming things in your life in terms of assets and liabilities will help you to see things much clearer than other people. It will put you ahead in life. It is something that you must understand completely – without ambiguity – in the finance world.

7- Seek Professional help for leagal and hard decisions

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You might have already realised that seeking professional help is as crucial as educating yourself. Financial literacy will open a world of possibilities for you, but there will be some decisions that you need to consult a professional such as an Accountant, Lawer, Financial advisor …etc.

Do not stress too much about this step. You just need to know that every financial decision has to be made based on correct information. You will not make any choices that you are uncertain of its outcomes. If you are unsure about something, then it is time for you to seek professional help.

This way of thinking will shield you from making any irrational decisions. Therefore you have to be patient and more open to seeking professional help when it is needed. It is better to be safe than sorry.

What will financial literacy offer you?

There are many benefits to being financially educated:

  • Gain the ability to think for yourself and make the best decision for yourself and your family. Make the best decisions, such as buying an investment property or building a shear portfolio.
  • You will never have to stress about money.
  • Financial literacy will help to spot bad and fraudulent deals. You will act legally at all times, and you will not get into any shady business that can set you back. It will help you chose your friends carefully and decide who should you trust with your money.
  • Grow passive investments that can feed you and your family for life.
  • It will completely change your consumer way of thinking and teach you to live a life below your means and not be dependent on others.

How to improve your financial knowledge?

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Once you have understood the basics of financial literacy, you can start to improve a specific aspect of your life, such as getting out of debt or investing in stocks, starting a company… etc.

It really comes down to your goals in life. If you are looking to open your own business, then you will spend more time learning to become an entrepreneur and using the tax system to your advantage. If you are looking to become financially independent then you will spend your time learning how to build passive incomes and how to automate those assets.

Financial literacy could be a lifelong learning process. You will try something and learn from your experience and then try again with a different approach. The secret is to never stop learning, so you need to be patient and understand that some things in life take time including financial literacy.

Is Financial Literacy hard?

The truth is it is not. The issue is that you were not taught financial literacy when you were at school. Therefore, it might feel different going against the crowd, since many people have their own opinions on money. That is why you need to read books and listen to experts because it will build a strong foundation for you.

Self-discipline has a lot to do with financial literacy. Once you realise how much money you spent on useless stuff, you start to face some difficulties, and that is when you need to discipline yourself. Remember, if things get tough, you can always seek help from professionals.

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