Financial Literacy (noun) – Investopedia.com describes financial literacy as “the ability to understand and effectively apply various financial skills, including personal financial management, budgeting, and investing. Financial literacy helps individuals become self-sufficient so that they can achieve financial stability.”
On the flipside, Investopedia describies finanical illiteracy as, “what contributes to people making poor financial decisions and becoming victims of abusive financial patterns.”
Things like budgeting, spend tracking, paying off debt effectively and properly planning for retirement are major factors to how financially literate you are. Do you budget? Do you study trends in your spending? Are you paying off debt? Are you planning anything for retirement?
I would even go so far as to throw in money for college as forward thinking. I can only imagine what the cost is going to be for an education for my little one!
I was not financially literate for a long time. It took nearly 2 decades for me to wrap my head around how money works, what a budget was (and how to stick to it), tracking spending and paying off debt. As I mentioned in a previous blog, I financed not one but TWO vehicles. Granted, it wasn’t simultaneous, but needless to say, I didn’t have my priorities straight then. Financial literacy lesson #1 learned – don’t make payments on something you cannot afford to pay cash for. Especially if it is a car with wheels and motor and is dropping in value daily.
I never stopped investing into retirement and neither did my wife. We consistently invested at least 3-4% of our checks into retirement since the age of 22. Now that money could have grown much more than it did, but something you probably didn’t know is that I cashed out 1/2 of my 401k when we got married. Financial literacy lesson #2 learned.
Financial literacy lesson #3 – It takes awhile to save for a down payment on a house. I don’t care if you live in California, New York, Texas or wherever, the housing market is expensive. Unless you make six figures per year, it will take some time. Be patient. Your time will come. It is a tough lesson to learn, but once you do (And can enjoy the ride), you will be much better off when you sign the papers and take on a mortgage.
I still don’t believe that I am fully financially literate. I have a lot of learning to do-but, I am willing to put in the hard work as I go.
We want to help you develop a stronger understanding of basic financial concepts so you don’t have to make the same mistakes that we did! Please contact us or send us a referral if you know someone that is struggling.
Madsen Financial Coaching 